NEW YORK, Nov. 6, 2019 /PRNewswire/ -- J.P. Morgan
Asset Management today released its 2020 Long-Term Capital Market
Assumptions (LTCMAs), this year exploring the complexities of
late-cycle investing in an environment of ultra-low bond yields.
The research forecasts modest global growth over the next 10-15
years, as investors must re-think "safe-havens" in their portfolio
now that bonds simply can't offer the same combination of portfolio
protection and positive income that they have in the past.
"Our 2020 assumptions are being released against a backdrop of
trade uncertainty between the world's economic superpowers and a
recent reversal in the trajectory of global monetary policy," said
John Bilton, Head of Global
Multi-Asset Strategy, J.P. Morgan Asset Management. "In an
environment of very low bond yields, investors must reassess how to
design the optimal portfolio as the trade-off is no longer between
foregone risky asset returns and reduced portfolio risk, but is
instead between a zero or even negative return in exchange for that
risk reduction."
"Over the last year, the economic cycle matured even further,
becoming the longest U.S. expansion on record," Dr. David Kelly, Chief Global Strategist, J.P.
Morgan Asset Management. "Our growth projections for the 10-15 year
investment horizon remain relatively modest with aging populations
a key headwind, while a technology-driven boost to productivity
represents the main upside risk. Portfolio flexibility remains key
for investors looking to manage cycle uncertainty, with those
seeking higher returns continuing to be drawn to private markets
and other alternatives as a both a diversifier and source of
alpha."
KEY FINDINGS
Global Growth: Real global growth is expected to
average 2.3% over the next 10-15 years, down 20 basis points (bps)
from our projections last year. The developed market forecast
remains unchanged at 1.5% but emerging market (EM) forecasts have
been trimmed 35bps to 3.9%. Population aging is broadly to blame
for the low forecasts for global growth.
Global Inflation: Projections for global inflation are
little changed from last year, with global CPI forecast at 2.2%. In
many countries, however, inflation will remain below this figure,
particularly those such as Japan
and Switzerland who have had many
years of extremely low nominal rates. Further, we project that
central banks in many countries will fall short of reaching their
stated inflation targets over our forecast horizon.
Monetary Policy: Global monetary policy is expected
to remain extremely accommodative throughout this cycle and well
into the next one, leading to a significant delay in rate
normalization being built into forecasts. That, in combination with
much lower starting yields and a modest cut to our equilibrium
yield estimates, adds up to a sharp fall in projected fixed income
returns – in some cases taking them negative over the forecast
horizon.
60/40 Portfolio Returns: Expected returns for a
60/40 U.S. stock-bond portfolio fall 10bps to 5.4% and the
stock-bond frontier steepens a little. Sharp ratios for bonds fall
sharply but still sit slightly ahead of equities in USD, while in
other currencies they are now negative in some cases, pointing to a
bleak outlook for fixed income returns.
ASSET CLASS ASSUMPTIONS
Equities: The long-term return outlook for equities
is slightly better in 2020 than last year. Average global equity
return forecasts over the next 10-15 years rise 50bps to 6.5% in
U.S. dollar terms. The forecast for developed markets is up 20bps
to 5.7%, and for emerging markets (EM) it is raised 20bps, to 8.7%
in local currency terms. In developed markets, the majority of this
improvement is the result of better starting valuations, while in
EM markets the boost is more evenly split between earnings and
valuation.
Fixed Income: Cash return forecasts in most major
currencies are lower as normalization assumptions have been
extended. This year's assumptions include an explicit ranking of
real cash rates across major markets.
Anticipating continued central bank dovishness, we shift our
equilibrium interest rates lower across major G4 markets and extend
the time horizon over which we expect rate normalization. In the
wider fixed income complex, credit continues to offer a decent
return uplift although expected total returns in U.S. investment
grade credit have come down 110bps to 3.4% due to a renewed drag
from interest rate normalization. For a long-term investor, credit
may present an opportunity to enhance portfolio returns.
Alternatives: As public equity returns move a little
higher this year, we see a parallel increase in private equity
market returns. The 10-15 year aggregate private equity return
forecast has been raised 55bps to 8.80%. Private equity continues
to be attractive to those investors looking for return uplift, as
well as those seeking more specific exposure to technology themes.
This year we forecast that core U.S. real estate returns, levered,
net of fees, will average 5.80% over the next 10-15 years. Casting
the net more widely, forecast returns from global real assets and
infrastructure have held up remarkably well, and given the
resilience of their cash flows they may even act as a proxy for
duration in portfolios with limited short run liquidity demands.
Manager selection remains the primary determinant of returns across
alternatives.
Currency Exchange Rates: As was the case last
year, we expect the U.S. dollar (USD) to depreciate over our
forecast horizon vs. other major global currencies. Our LTCMAs
forecast a long-term equilibrium fair value for EURUSD of 1.38, for
USDJPY of 88, and for GBPUSD of 1.48. The dollar's overvaluation
could compromise some of the currency's appeal as a potential safe
haven asset. We also note that currencies don't move to equilibrium
in a straight line and crosses can remain at a good stretch from
theoretical fair value for lengthy periods. Nevertheless, a
persistently overvalued USD remains a meaningful consideration when
designing an optimal global asset allocation.
In addition to covering key findings, the 2020 research explores
four important themes in depth, including:
- The failure of monetary stimulus – The limitations of
conventional and unconventional monetary easing.
- The next phase of China's
growth – How China's financial markets are changing as it
becomes a higher-income country.
- New economy, same old returns? – What the adoption of
e-commerce technology can mean for economic growth and investment
opportunities.
- Rethinking safe haven assets – What can investors do to
build more resilient portfolios?
The LTCMAs are developed as part of a deep, proprietary research
process that draws on quantitative and qualitative inputs as well
as insights from a team of more than 30 experts across J.P. Morgan
Asset Management. In its 24th year, these time-tested
projections help build stronger portfolios, guide strategic asset
allocations, and establish reasonable expectations for risk and
returns over a 10- to 15- year timeframe for more than 50 major
asset and strategy classes. These assumptions fuel decision-making
in J.P. Morgan's multi-asset investing engine and inform client
conversations throughout the year.
Please view the full 2020 Long-Term Capital Market Assumptions
and thematic articles here.
About J.P. Morgan Asset Management
J.P. Morgan Asset Management, with assets under management
of $1.9 trillion (as of September 30, 2019), is a
global leader in investment management. J.P. Morgan Asset
Management's clients include institutions, retail investors and
high net worth individuals in every major market throughout the
world. J.P. Morgan Asset Management offers global investment
management in equities, fixed income, real estate, hedge funds,
private equity and liquidity.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global
financial services firm with assets of $2.9 trillion and
operations worldwide. The Firm is a leader in investment banking,
financial services for consumers and small businesses, commercial
banking, financial transaction processing, and asset management. A
component of the Dow Jones Industrial Average, JPMorgan Chase &
Co. serves millions of customers in the United States and
many of the world's most prominent corporate, institutional and
government clients under its J.P. Morgan and Chase brands.
Information about JPMorgan Chase & Co. is available
at www.jpmorganchase.com.
J.P. Morgan Asset Management is the marketing name for the asset
management businesses of JPMorgan Chase & Co., and its
affiliates worldwide.
The resulting projections derived from the J.P. Morgan Asset
Management ("JPMAM") Long Term Capital Market Assumptions include
only the benchmark return associated with the portfolio and does
not include alpha from the underlying product strategies within
each asset class. The assumptions are presented for illustrative
purposes only. They must not be used, or relied upon, to make
investment decisions. The assumptions are not meant to be a
representation of, nor should they be interpreted as JPMAM
investment recommendations. Allocations, assumptions, and expected
returns are not meant to represent JPMAM performance. Please note
all information shown is based on assumptions, therefore, exclusive
reliance on these assumptions is incomplete and not advised.
The individual asset class assumptions are not a promise of
future performance. Note that these asset class assumptions are
passive-only; they do not consider the impact of active
management.
Opinions and statements of financial market trends that are
based on current market conditions constitute our judgment and are
subject to change without notice. References to specific
securities, asset classes and financial markets are for
illustrative purposes only and are not intended to be, and should
not be interpreted as, recommendations. The information in this
piece is not intended to provide and should not be relied on for
accounting, legal, and tax advice or investment
recommendations.
The views contained herein are not to be taken as advice or a
recommendation to buy or sell any investment in any jurisdiction,
nor is it a commitment from J.P. Morgan Asset Management or any of
its subsidiaries to participate in any of the transactions
mentioned herein. Any forecasts, figures, opinions or investment
techniques and strategies set out are for information purposes
only, based on certain assumptions and current market conditions
and are subject to change without prior notice. All information
presented herein is considered to be accurate at the time of
production. This material does not contain sufficient information
to support an investment decision and it should not be relied upon
by you in evaluating the merits of investing in any securities or
products. In addition, users should make an independent
assessment of the legal, regulatory, tax, credit and accounting
implications and determine, together with their own professional
advisers, if any investment mentioned herein is believed to be
suitable to their personal goals. Investors should ensure that they
obtain all available relevant information before making any
investment. It should be noted that investment involves risks, the
value of investments and the income from them may fluctuate in
accordance with market conditions and taxation agreements and
investors may not get back the full amount invested. Both past
performance and yields are not reliable indicators of current and
future results.
J.P. Morgan Asset Management is the brand for the asset
management business of JPMorgan Chase & Co. and its affiliates
worldwide.
To the extent permitted by applicable law, we may record
telephone calls and monitor electronic communications to comply
with our legal and regulatory obligations and internal policies.
Personal data will be collected, stored and processed by J.P.
Morgan Asset Management in accordance with our Company's Privacy
Policy (https://www.jpmorgan.com/global/privacy). For further
information regarding our local privacy policies, please follow the
respective links: Australia
(https://www.jpmorgan.com/country/AU/EN/privacy), EMEA
(https://am.jpmorgan.com/us/en/asset-management/gim/mod/legal/external-privacy-policy),
Japan
(https://www.jpmorganasset.co.jp/wps/portal/Policy/Privacy),
Hong Kong
(https://am.jpmorgan.com/hk/en/asset-management/per/privacy-statement/),
Singapore
(http://www.jpmorganam.com.sg/privacy) and Taiwan
(https://www.jpmrich.com.tw/wps/portal/Footer/Privacy).
This communication is issued by the following entities: in the
United Kingdom by JPMorgan Asset
Management (UK) Limited, which is authorized and regulated by the
Financial Conduct Authority; in other European jurisdictions by
JPMorgan Asset Management (Europe)
S.à r.l.; in Hong Kong by JPMorgan
Asset Management (Asia Pacific)
Limited, or JPMorgan Funds (Asia)
Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management
(Singapore) Limited (Co. Reg. No.
197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E),
this advertisement or publication has not been reviewed by the
Monetary Authority of Singapore;
in Taiwan by JPMorgan Asset
Management (Taiwan) Limited; in
Japan by JPMorgan Asset Management
(Japan) Limited which is a member
of the Investment Trusts Association, Japan, the Japan Investment Advisers
Association, Type II Financial Instruments Firms Association and
the Japan Securities Dealers Association and is regulated by the
Financial Services Agency (registration number "Kanto Local Finance
Bureau (Financial Instruments Firm) No. 330"); in Australia to wholesale clients only as defined
in section 761A and 761G of the Corporations Act 2001 (Cth) by
JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL
376919); in Brazil by Banco
J.P. Morgan S.A.; in Canada for
institutional clients' use only by JPMorgan Asset Management
(Canada) Inc., and in the United States by J.P. Morgan
Institutional Investments, Inc. or JPMorgan Distribution Services,
Inc., both are members of FINRA; J.P. Morgan Investment Management,
Inc. or J.P. Morgan Alternative Asset Management, Inc.
Copyright 2019 JPMorgan Chase & Co. All rights reserved.
View original
content:http://www.prnewswire.com/news-releases/jp-morgan-releases-2020-long-term-capital-market-assumptions-analysis-reveals-need-for-new-portfolio-construction-tactics-in-low-rate-world-300952980.html
SOURCE J.P. Morgan Asset Management