Asset Allocation

2022 Capital Market Assumptions for Major Asset Classes

Topics - Asset Allocation Strategic Asset Allocation Portfolio Construction

${ numberSection } ${ text }
2022 Capital Market Assumptions for Major Asset Classes

This article updates our estimates of medium-term (5- to 10-year) expected returns for major asset classes. It also includes an analysis that attempts to reconcile ever-lower expected returns with ever-higher realized returns and suggests practical strategic steps to boost portfolio expected returns. U.S. equity and bond expected returns both moved lower in 2021, while changes to their global counterparts were mixed. The expected real return of a 60/40 portfolio remains around 2%, less than half its long-term average of nearly 5% (since 1900 1 1 Close Historical comparison is based on a simpler methodology than main estimates, due to data availability; methodology described in Appendix. ).

 

About the Portfolio Solutions Group
The Portfolio Solutions Group (PSG) provides thought leadership to the broader investment community and custom analyses to help AQR clients achieve better portfolio outcomes.


We thank Alfie Brixton, Pete Hecht, Thomas Maloney and Nick McQuinn for their work on this paper. We also thank Antti Ilmanen for helpful comments.

 

AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.
 

The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.

 

Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.

 

Diversification does not eliminate the risk of experiencing investment loss.

 

Certain publications may have been written prior to the author being an employee of AQR.

This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.

 

AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.