Dispersion within markets and the macroeconomy

Our Capital Market Assumptions (CMAs) provide return, volatility and correlation forecasts for various asset classes, typically over a ten-year investment horizon. They are calculated using a proprietary model which employs quantitative econometric analysis and incorporates a diverse range of inputs, including bottom-up and top-down insights from across our global investment platform. This provides a robust foundation for our strategic asset allocation processes, which play a key role in investment solution design and portfolio construction.

We update our CMAs on a six-monthly basis. Key points from our November 2025 update include:

Investment philosophy: We are now in a world where resilience and risk coexist, narratives shape markets as much as numbers do, and forward-looking frameworks are essential for guiding long-term decisions. We have therefore evolved our CMA framework:

• We are rethinking how we estimate risk, employing a macro-weighted approach that better captures structural shifts such as higher inflation and policy volatility.
• We are introducing scenario-based CMAs, narrative-driven paths which explore how different futures could unfold, including ‘Fragmented World’ and ‘AI-Driven Renaissance’ scenarios.

Active management: Market narratives and economic realities are moving at different speeds, creating opportunities for active managers at all levels of portfolio implementation - the capture of opportunities and management of risks should be approached from both top-down and bottom-up perspectives.

Macroeconomics: The economic backdrop is shifting from extreme volatility to a more balanced but structurally less-stable regime than the pre-Covid era. Growth is uneven, inflation persistent, and policy pathways are uncertain. The era of low volatility, low rates and synchronised expansion is therefore unlikely to return.

Equities: Our base case is for a solid but lower-than-historical-average 5.7% annualised return for global equities over the next ten years (USD). However, compelling opportunities remain available for active managers given a high level of valuation and earnings growth dispersion across the market. The range of potential aggregate long-term return outcomes has also widened due to the increased influence of uncertain variables like AI-driven productivity gains and geopolitical fragmentation.

Fixed Income: Ten-year government bond yields are now broadly aligned with our forward-looking equilibria in the largest markets, while curves have steepened. This restores balance to long-term return expectations and supports the case for fixed income investment, particularly within diversified portfolios.

Private markets: Private assets continue to offer attractive compensation for investors willing to accept illiquidity in pursuit of higher returns. The ability of managers to identify, structure and execute opportunities remains the key differentiator of performance outcomes.

Figure 1: Long-term potential remains attractive, Fixed Income has become more competitive
Projected ten-year average nominal returns, USD

For illustrative purposes only. Assumptions are based on proprietary modelling, reflecting the views of investment professionals at Fidelity International.
Source: Fidelity International, 30 September 2025.

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