In focus - Markets

What market returns might investors expect over the next ten years?

Investors with high hopes might be disappointed with our forecast market returns over the next decade.

19/09/2019

Philip Haddon

Philip Haddon

Head of Investment Communications

Emerging market equities are likely to lead returns over the next 10 years, according to latest analysis from Schroders.

The research is carried out twice a year by Riaz Fidahusein, Head of Strategic Allocation Modelling – Multi-Asset, and Keith Wade, Chief Economist. The full research and information about its methodology can be found in the PDF at the bottom of the page.

The forecast returns have been lowered across the board compared to the last time the analysis was carried out, as you can see in the table below.

Investors may be disappointed

The findings highlight just how overly-ambitious investors’ return expectations may prove to be. The 2019 Schroders Global Investor Study surveyed more than 25,000 investors around the world. It found that on average they expect their portfolio to return 10.7% per annum (p.a.) over the next five years.

These expectations exceed the forecast returns of even the best-performing asset class included in the research. Emerging market equities are forecast to return 9.0% p.a. between 2019 to 2029. This is a downgrade from 10% in the previous analysis published in March, which covered 2018 to 2028.

All the returns in the forecasts are calculated in local currencies.

How might equities perform?

After our downgrades, the lowest stock market returns p.a. globally are forecast to come from Japan with 3.0% and the UK with 3.9%.

Behind emerging markets, the US is forecast to be the next best source of returns over the next ten years, with 6.0%. Global equities follow at 5.7%, then Europe at 4.1%.

What about bonds?

Central banks continue to keep monetary policy loose, with the US Federal Reserve’s interest rate hiking cycle coming to an earlier end this year than many had expected. This has contributed to our reduced expectations from bonds across the board.

The highest annualised bond returns are forecast to come from emerging market bonds denominated in local currencies (5.7%) and high yield bonds (4.3% in the US and 4.1% for emerging markets).

Developed market government bond returns look subdued, with the US leading the way at 1.9% p.a, followed by the UK (0.8%) and Europe (0.2%). Annual returns from Japanese government bonds are forecast to be negative (-0.2%).

And alternatives?

Private equity is forecast to produce some of the best annual returns (7.2%) of all the asset classes included in the analysis. Our forecast for hedge funds is 3.9% p.a.

Commodities is one area where our forecasts remain unchanged and we forecast a 0.9% p.a. return.

Return forecasts for the next ten years (and our previous forecasts) in local currency terms

Sept-2019-10-year-forecast-returns-Summary-PH.JPG

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors.

  • The 2018-2028 forecasts can be found here

The PDF below contains the full forecasts and information about the methodology used.