![]() ![]() Securities and Exchange Commission (“SEC”) pursuant to the Investment Advisers Act of 1940, as amended. BNY Mellon Investor Solutions, LLC is an investment adviser registered as such with the U.S. ![]() Use of an affiliate after such a referral remains the sole decision of the client. To learn more, please contact your BNY Mellon representative.ĭownload the full Capital Market Assumptions here.ĭownload a PDF of this Capital Market Assumptions Executive Summary here.įor Financial Professionals and Institutional Investors Only.īNY Mellon Investor Solutions may refer clients to certain of its affiliated offering expertise, products and services which may be of interest to the client. When designing a policy portfolio to weather the highs and lows of the coming market cycle, we propose investors consider a “robust” portfolio, rather than an “optimal” one. However, forecasting is an inherently error-prone endeavor, because financial market performance exhibits a high degree of uncertainty. We encourage you to read the latest Vantage Point to learn more about our economic projections.Ĭapital market assumptions are the initial building block for the development of an investor’s strategic asset allocation (SAA). This approach allows us to not only analyze portfolios based on the expected case, but also to shock the portfolio under the various scenarios. We develop return expectations under each of these scenarios, then probability weight the returns to determine our overall “expected” return. ![]() These scenarios take into account pressing issues facing the world economy including the ongoing energy crisis, triggered by Russia’s invasion of Ukraine persistent core inflation driven by tight labor markets and high wage inflation and, China’s zero-Covid policy and property deflation. The economic projections underpinning our asset class return assumptions are based on three economic scenarios outlined in BNY Mellon Investment Management’s 2022 Q4 Vantage Point. Projections of inflation and real cash rates are extremely influential in projecting fixed income yields and returns. Inflation and real GDP growth are key drivers of our expected earnings growth for equity. When building capital market assumptions, we start with projections of inflation, real GDP growth, short-term interest rates and currency rates. Environment, Social and Governance - We expect ESG and responsible investing to increasingly influence investor allocation decisions and thereby have a potentially larger impact on financial markets for years to come.Geopolitical challenges - Continued geopolitical tensions may result in further deglobalization and reshoring, impacting variable costs, corporate margins and investor returns.Looking beyond the next 10 years, we also explore the impact of themes that may shape market expectations and impact these forecasts over a longer timeframe. 2022 10-year Capital Market Return Assumptions Alternative asset class expected returns are generally higher and in line with publicly traded markets on a risk-adjusted basis plus incremental return for alpha and illiquidity.Fixed income asset class expected returns have reverted to levels not seen in many years, significantly higher when compared to 2022 given the dramatic increase in global bond yields.Equity market expected returns have increased due to slightly higher long-term growth rates and upward valuation adjustments (most notably in emerging markets).Our 2023 10-Year CMAs forecast higher expected returns across most asset classes when compared to 2022 assumptions (see table below).However, looking forward, the increased market volatility and asset repricing during 2022 have driven notable changes to our 2023 forecasts relative to our forecasts just a year ago. There have been few “safe-haven” assets in 2022, regardless of asset class, geography, market cap, style, credit quality and/or duration. With limited evidence of victory in their battle against inflation, monetary policymakers have remained resolute in their hawkish view and continue with tightening monetary policy. Slowing global economic growth and the persistence of elevated inflation have weighed heavily on market returns in 2022. ![]()
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