Investors might be deterred from leaving the haven of cash amid so much economic and geopolitical uncertainty, but they risk missing superior cumulative returns, according to J.P. Morgan Asset Management’s (JPM AM) latest 10-15 year outlook for asset classes.
“As investors navigate a world in transition, it is crucial to build smarter portfolios by extending out of cash and benchmarks, expanding opportunity sets into alternatives and adding greater international exposure for better diversification and returns,” Sylvia Sheng, global multi-asset strategist at JPM AM, told a media briefing in Hong Kong on Monday.
In its 2024 Long-Term Capital Market Assumptions (LTCMA), JPM AM’s forecasted annual return for a US dollar 60/40 stock-bond portfolio over the next 10–15 years is 7%, but its strategists point to opportunities to boost performance.
For instance, adding a 25% allocation to alternative assets can raise 60/40 forecast returns by 60 basis points and improve the Sharpe ratio by approximately 12%, according to proprietary research that draws on quantitative and qualitative inputs as well as insights from a team of more than 60 experts across J.P. Morgan Asset and Wealth Management.
In real terms, $100 in 10 years will be worth just $104 if invested in cash, yet will likely be worth $154 if invested in a 60/40 portfolio and $163 if that included 25% in alternatives, such as real estate. The returns would be even higher for an above median manager.
“It is critical to have our clients’ investment portfolios mapped out against the LTCMAs predictions to understand the risk-reward potential beyond both one cycle and over a 10-15 year period,” said Yvonne Leung, Asia head of managed solutions, J.P. Morgan Private Bank.
The LTCMAs “help identify new and review existing investment opportunities unique to each client’s long-term goals – considering liquidity, lifestyle, legacy and growth objectives,” she added.
Moreover, JPM AM’s long-term growth outlook has risen slightly to 2.4% from 2.3%, driven by a positive productivity impact from automation and artificial intelligence, while the energy transition and emergence of new technologies have the potential to present investment opportunities.
“Yet, several market imbalances deserve attention as they could exert significant influence on returns and risks,” said Sheng (pictured). “One of the trends we observed is the growing separation between China and the broader emerging market (EM) opportunity set.”
“While more favourable fundamentals bode well for non-China EM equities, Chinese equities remain attractive from a valuation perspective and given our forecast for a gradual renminbi appreciation. Thus, actively rebalancing and diversifying allocation in EM will be key to capture opportunities and manage risks,” she said.
EM retain their growth premium relative to developed market (DM) economies, but this gap has been narrowing steadily, according to Tai Hui, Apac chief market strategist, JPM AM.
“Our DM growth forecast moves up to 1.6% in response to rapid advances in artificial intelligence which provide a boost to productivity. Meanwhile, our EM forecast slips to 3.5% as China’s decades-long expansion continues to slow.”