The 'new return environment' will probably emerge this year, says the chief executive of Standard Life Investments, but investors should take a 10-year view.
Keith Skeoch, CEO of the Edinburgh-based fund manager, says looking ahead at returns for 12 months – which is commonplace at this time of year – is often no better than a “leap in the dark”.
Today Standard Life Investments publishes its projected 10-year returns for a number of asset classes, saying the discipline of making a long-term estimate forces investors to decide on credible key assumptions and assess the sensitivity of the final numbers.
Global equities and global real estate emerge as the assets expected to have the highest returns.
Adjusting for inflation, Standard Life Investments expects equity returns of: -1 to 8% (US); 0.75 to 9.5% (Europe); 1 to 9% (UK).
Real estate expectations are: 0.25 to 8.75% (US); 1 to 9.5% (Europe); 0 to 8% (UK).
Government bond expected returns are: -4 to 1.25 (US); -2.5 to 1.25 (Europe); -3.75 to 0.5% (UK).
Saying that 2012 saw stock picking rewarded, Skeoch adds: “The long-run signals do suggest that the return environment shaped by the post crisis world is starting to change.
“I firmly believe that it was never a question of simply ‘risk on, risk off’, but more ‘where is risk likely to be rewarded?’ History and common sense suggest that looking forward this is unlikely to be the safe-haven assets, where prices are still close to 100-year highs.”
The return forecasts make certain assumptions - such as inflation of 1 to 2% per annum in Europe for example – and appear in Standard Life Investments’ Global Outlook, First Quarter 2013.
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