New research suggests that financial markets are starting to look attractive once again after a dismal year for investors. Could there be better times ahead?
- JPMAM’s LTCMA report shows a forecast annual return for a 60/40 equity bond portfolio over the next 10-15 years at 7.2%
- It also forecast a return to business as usual, with different asset classes assuming their traditional roles in portfolios
- The LTCMA report shows that the seven of the 10 best days in markets occurred within fifteen days of the 10 worst days
“The most attractive investment opportunities we’ve seen in a decade.” This was the verdict of John Bilton, JP Morgan Asset Management’s head of global multi-asset strategy, based on the group’s annual Long Term Capital Markets Assumptions (LTCMA) research. Is it time for investors to stop worrying?
The LTCMA report shows a forecast annual return for a 60/40 equity bond portfolio over the next 10-15 years has moved from 4.3% to 7.2%. Return forecasts were positive across the risk spectrum, after a period when it has been difficult to make a good case for bonds. The group said inflation was likely to cool over the next two years.
Perhaps most importantly, it also forecast a return to business as usual, with different asset classes assuming their traditional roles in portfolios – “equities providing strong capital appreciation, fixed income providing meaningful income and alternatives providing diversifying exposure to unique return streams.”
Bilton admits that this verdict may seem “bizarrely optimistic” at a time when inflation figures continue to come in higher than expected, the war in Ukraine is still raging and when central banks warn of impending and prolonged recession. “This has been a year to be in the bunker…but if you stay in the bunker too long, you miss when the dust settles. This is an opportunity to take a step back and say that while there is volatility ahead, and we’re not out of the woods, these are long-term forecasts.”
The danger, as always, is that investors miss the bounce. History suggests that bounce doesn’t come when the world has started getting better, only when it has stopped getting worse. The LTCMA report shows that the seven of the 10 best days in markets occurred within fifteen days of the 10 worst days. Missing the best 10 days in markets over the last 20 years has reduced an investor’s annualised return from 9.76% to 5.56%. The message on staying invested is as strong as it has ever been.
There are tentative signs of a recovery. Over the past month, the MSCI World has been steadily gaining ground. Earnings continue to be stronger than expected and better inflation news from the US has encouraged investors. It is early days and the market still has bad news to process. However, as long as it isn’t worse than expected, markets should be able to shake it off. It has been a tough year, but there are reasons to be more optimistic going into 2023.
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