Our Chief Cross-Asset Strategist Serena Tang discusses how
current market conditions are challenging traditional investment
strategies and what that means for asset allocation.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Serena Tang, Morgan
Stanley’s Chief Cross-Asset Strategist.
Today – does the 60/40 portfolio still make sense, and what can
investors expect from long-term market returns?
It’s Monday, December 22nd at 10am in New York.
Global equities have rallied by more than 35 percent from lows
made in April. And U.S. high grade fixed income has seen the last
12 months’ returns reach 5 percent, above the averages over the
last 10 years. This raises important questions about future
returns and how investors might want to adapt their portfolios.
Now, our work shows that long-run expected returns for equities
are lower than in previous decades, while fixed income – think
government bonds and corporate bonds – still offers relatively
elevated returns, thanks to higher yields.
Let’s put some numbers to it. Over the next decade, we project
global equities to deliver an annualized return of nearly 7
percent, with the S&P 500 just behind at 6.8 percent.
European and Japanese equities stand out, potentially returning
about 8 percent. Emerging markets, however, lag at just about 4
percent. On the bond side, we think U.S. Treasuries with a
10-year maturity will return nearly 5 percent per year, German
Bunds nearly 4 [percent], and Japanese government bonds nearly 2
[percent]. They may sound low, but it’s all above their long-run
averages.
But here’s where it gets interesting. The extra return you get
for taking on risk – what we call the risk premium – has
compressed across the board. In the U.S., the equity risk premium
is just 2 percent. And for emerging markets, it’s actually
negative at around -1 percent. In very plain terms, investors
aren’t being paid as much for taking on risk as they used to be.
Now, why is this the case? It’s because valuations are rich,
especially in the U.S. But we also need to put these valuations
in context. Yes, the S&P 500’s cyclically adjusted
price-to-earnings ratio is near the highest level since the
dotcom bubble. But the quality of the S&P 500 has improved
dramatically over the past few decades. Companies are more
profitable, and free cash flow -- money left after expenses -- is
almost three times higher than it was in 2000. So, while
valuations are rich, there’s some justification for it.
The lower risk premiums for stocks and credits, regardless of
whether we think they are justified or not, has very interesting
read across for investors’ multi-asset portfolios. The efficient
frontier – meaning the best possible return for any given level
of portfolio risk – has shifted. It’s now flatter and lower than
in previous years. So, it means taking on more risk in a
portfolio right now won’t necessarily boost returns as much as
before.
Now, let’s turn our attention to the classic 60/40 portfolio –
the mix of 60 percent stocks and 40 percent bonds that’s been a
staple strategy for generations. After a tough 2022, this
strategy has bounced back, delivering above-average returns for
three years in a row. Looking ahead, though, we expect only
around 6 percent annual returns for a 60/40 portfolio over the
next decade versus around 9 percent average return historically.
Importantly though, advances in AI could keep stocks and bonds
moving more in sync than they used to be. If that happens,
investors might benefit from increasing their equity allocation
beyond the traditional 60/40 split.
Either way, it’s important to realize that the optimal mix of
stocks and bonds is not static and should be revisited as market
dynamics evolve.
In a world where risk assets feel expensive and the old rules
don’t quite fit, it’s essential to understand how risk, return,
and correlation work together. This will help you navigate the
next decade. The 60/40 portfolio isn’t dead – and optimal
multi-asset allocation weights are evolving. And so should you.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
Kommentare (0)
Melde dich an, um einen Kommentar zu schreiben.