Equities could deliver returns in the region of 8% and be the best asset class during 2012 to 2016, according to forecasts by Robeco, the Dutch fund management company.
Emerging market, value and momentum stocks could each deliver 8%, while frontier market equities could see returns as high as 8.25%, the firm said in a report out last week that looks at equities, bonds and alternatives. Low volatility stocks and developed market equities are expected to return 7%.
Equity returns will be below the long-term average and emerging markets – with a volatility of 25% - will be relatively the most attractive to hold.
Volatility for equities ranges from 13% for low volatility stocks to 28% for frontier markets. Most are in the 20% to 25% volatility range.
Hedge funds, meanwhile, are forecast to return 4.75% with a volatility of 10%. Other alternative asset classes in the report include: private equity (7% with 25% volatility) and commodities (4.75% with 25% volatility). Indirect and direct real estate are predicted to return 6% and 5% respectively.
The report (Robeco’s Expected Returns, 2012-2016) is aimed at long-term investors and gives forecasts for expected returns from current economic circumstances over a longer period of time. For example, momentum and value stocks are each predicted to return 9% - the highest among equities - with other equity classes returning between 8% and 8.75%.
The firm acknowledges that there is much uncertainty in these forecasts. Robeco reached its conclusions by first estimating the long-term equilibrium returns expected regardless of the current economic environment, and combined these returns with the macro-economic environment and valuations.
Robeco also feels that inflation-linked bonds, commodities, and commodity-related equities are the best hedges against shocks in inflation.
©2012 funds europe