Discover our long-term investment views, exploring expected returns across various asset classes.
In a pivoting world marked by rising nationalism and geopolitical fragmentation, Europe has the potential to boost its competitiveness, Asia is emerging as a global tech powerhouse, and the US will continue to reap the benefits of artificial intelligence.
While these trends point to a favourable growth/inflation mix for the next decade, long-term growth towards 2050 will face challenges from deteriorating demographic dynamics, high debt and climate impacts.
A more favourable growth/inflation mix for the next decade translates into better return prospects compared to last year’s projections. Around 70% of the asset classes covered should deliver returns above the past 20-year average, and 90% of them have improved versus our 2024 capital market assumptions, largely due to improved bond returns.
Improved returns in bonds, which remain a key performance engine, and a more favourable outlook for risky assets will lead the dynamically optimised 60-40 strategic asset allocation (with c.12% volatility target) to deliver returns around 7% in USD and 6% in EUR. Enhanced diversification will be key in a pivoting world with multiple geopolitical, macro and market risks.
Artificial intelligence (AI)-driven productivity gains and more spread-out costs related to a gradual implementation of climate policies are likely to support the growth-inflation mix in the next decade. From the 2040s, potential growth will primarily be driven by demographic factors, including the Emerging Markets (EM) which are still benefitting from a demographic dividend, while chronic climate physical costs will increase across regions. This will lead to a compression of the EM growth premium.
Increased defence spending and investments to boost innovation and European competitiveness will drive productivity gains when properly targeted on specific projects. While we have started modelling some of these gains, the recent extraordinary fiscal push in Germany, the plan to enhance defence at the EU level, and a potential ceasefire and reconstruction in Ukraine are not yet factored into this year’s assumptions and could further lift European growth. Hence, we believe that the European asset classes (equities, bonds and the euro) have room to continue over the next years.
Bonds are expected to remain appealing in both Europe and the US, providing a stable anchor for future asset allocations. Yet, investors should consider rising inflation uncertainty stemming from geopolitical tensions and supply chain disruptions, food security, and increasing demand for resources deriving from the world’s technological transformation. These factors, combined with higher expected public debt, could exert upward pressure on long-term rates.
A more favourable growth outlook for the next decade compared to last year’s assumptions, despite greater uncertainty regarding inflation which is set to remain slightly above central bank targets, results in higher expected returns across the spectrum of asset classes covered. Expectations have been revised upwards for regional equity markets and private assets in particular, with Private Equity, Infrastructure, and European equities showing the strongest improvements.
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