Fragmentation and global rewiring

Implications for returns and risk across asset classes – June 2025

Our Capital Market Assumptions (CMAs) provide return, volatility and correlation assumptions for various asset classes, typically over a ten-year investment horizon. They are calculated using a proprietary model that employs quantitative econometric analysis and incorporates a diverse range of inputs, including bottom-up and top-down insights from across our 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 latest update include:
 

• Macroeconomics: Over the next decade, inflation and policy rates are likely to remain structurally higher than they were through the 2010–2020 period. Macro risk will also remain elevated relative to the pre-2020 era, although we expect it to decline from the current levels over the medium-to-long term.
• Fixed Income: Bonds remain a compelling option for long-term investors. However, we expect them to exhibit higher volatility and increased correlation with equity returns, due to greater inflation volatility and higher term premia.
• Equities: Despite some parts of equity markets being overvalued, geographically diversified equity strategies still hold the potential to deliver attractive returns over the long term. However, given elevated uncertainty, diversification across various segments of the equity market (regions, sectors, factors) will be important.
• Private markets: Expected returns remain attractive for long-term investors willing to take on more illiquidity risk. That said, active manager skill will remain key to delivering positive portfolio outcomes, especially in a higher rate environment.
• Strategic Asset Allocation: Over the past five years, we have transitioned to an investment environment defined by higher macro volatility, higher yields, higher equity/bond return correlations, and increased market concentration. This calls for greater diversification, utilising a broader set of tools than a simple (and concentrated) market-cap equity/bond approach.

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Unless stated differently, information dated as of June 2025.
 
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