Long-run asset class performance: 30-year return forecasts (2025–54)
We are generally expecting higher returns across the different asset classes in large part driven by higher productivity growth for equities and the impact of higher long-run central bank policy rate forecasts for fixed income.
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Each year Schroders’ team of economists helps investors take a truly long-term view with 30-year return forecasts for a range of asset classes around the world.These forecasts are unique because they include the effect of climate change, which is added on top of a set of building blocks to produce our estimates.
The impact of climate change
In Part 1 of our paper, we outline the methodology used to incorporate climate change into our return assumptions. This year, we have made a key change in the damage function used to calculate the impact of climate change – the relationship that governs how climate change impacts productivity.
This shift is driven by the desire to align the climate assumptions and scenarios more closely with recent academic literature and, at the same time, to make the assumptions more realistic in taking account of temperature anomalies (i.e. deviations from long-term temperature averages). This allows us to consider factors like temperature volatility and extreme weather events – providing us with a clearer picture of the shape of temperature distribution beyond the mean.
We find that most countries experience higher productivity in our central scenario, as they benefit from transitioning to a cleaner economy, avoiding the impacts of higher temperatures.
Implications for asset classes
In Part 2 we discuss our 30-year forecasts for cash, bonds, credit, equities, and real estate, incorporating the impact of climate change and explain what has changed from our previous analysis.
This year, we anticipate higher returns across various asset classes, both in real and nominal terms, especially within the fixed income markets. At the global level, our forecast for equity returns has increased due to stronger expected returns in developed markets, particularly in the US.
In the US, the nominal equity return projection has been lifted by an upward revision in dividend growth, which is supported by improved productivity growth. Productivity growth has been, in part, lifted in most countries by the transition to a cleaner economy under Delayed Transition.
Delayed Transition is our central scenario for climate modelling and entails a disorderly transition to net zero as carbon pricing only starts to rise from 2030.
Investors need to work harder
In terms of our cash return forecasts, particularly for the developed economies, the rise in expected returns has been led by upward adjustments to our long-run central bank policy rate forecasts. This has been driven by an acknowledgement of the improvement in the underlying growth of these economies following the Global Financial Crisis.
Given upgrades to our cash return forecasts, this means higher long-run return forecasts for the sovereign and credit bond markets.
Overall, equities continue to provide stronger returns compared to bonds, with emerging equities anticipated to outperform most developed markets. But our forecast for the risk premium associated with equities versus major government bond markets has narrowed. As a result, equity investors will still need to work harder to generate superior returns.
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