In Ninety One’s first Capital Market Assumptions paper of 2025, Multi-Asset analyst Dan Morgan assesses the long-term expected returns across global asset classes. The latest edition, based on data as at 31 March 2025, shows a modest uplift in expected returns across both equities and fixed income — but confirms that the overall investment landscape remains subdued.
Major policy shifts are reshaping the investment landscape: the US is pursuing deregulation and a smaller federal footprint; Europe is unlocking large-scale infrastructure and defence spending, and China is pivoting toward consumption-led growth. Morgan stated: “Amid heightened volatility and global realignments, the starting points matter — particularly for long-term investors.” A traditional 60% global equity / 40% global government bond portfolio is expected to return about 4.4% per annum in nominal USD terms over the next decade — a slight uptick but still modest by historical standards.
A case study in the report examines the drivers of the past decade’s US equity returns — which far exceeded forecasts — and contrasts them with Europe’s stagnation. While US returns were supported by both robust growth and valuation expansion, Europe’s revenue growth flatlined.
But that dynamic may be changing. Europe could be nearing a turning point, with scope to return to its long-run growth trend after more than a decade of malaise. Structural reform, fiscal stimulus and improving corporate governance are beginning to reshape the region’s outlook.
The pattern echoes Japan’s experience after the 1990s — a long stretch of stagnation followed by a slow return to dividend growth and corporate reform.
Prospective returns across global fixed income markets have edged higher, with income continuing to drive the bulk of return potential. In the past six months alone, sovereign bond yields and credit spreads have risen, though spreads remain tight by historic standards.
Morgan continued: “Government bond yields have moved back to levels which are more consistent with long-run averages, but the additional compensation for taking on credit risk has remained relatively low."
This picture shifted with the sharp post-quarter-end repricing, which saw US high yield spreads snap back toward their 15-year average, but the opportunity to invest at a significantly higher level of expected returns was short-lived. “Fixed income investors will need to stay tactical,” Morgan added, “as the risk environment and monetary policy cycles evolve unevenly across regions.”
Global equity return expectations have edged higher since the October Capital Market Assumptions, but remain modest. Growth — rather than income or valuation — is expected to drive the majority of returns over the next decade, with income contributions stable and valuation effects somewhat negative across most markets.
Among regions, Japan, the UK, and emerging markets offer relatively more attractive long-term prospects than the US and Europe ex-UK. Yet, even at the trough of a 10% post-quarter-end drawdown, the forecast for global equities rose only modestly, underscoring the structural headwinds facing investors.
With lower return expectations and greater dispersion across regions and asset classes, investors will need to be more selective. Outperformance is unlikely to come from broad exposure alone. It will depend increasingly on active asset allocation, a clear view on structural growth trends, and tactical discipline in a more demanding market environment. Morgan concluded: “In a world of accelerated change, long-term fundamentals — and starting valuations — will define future success.”