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The Northern Trust Predictions

Report: Systematic Strategies

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Stockholm (HedgeNordic) – What rates of return can investors expect to earn on equities, bonds, private equity or hedge funds in the next five years? According to Northern Trust’s five-year investment outlook, on a global basis, investors should expect equity returns in the range of mid-single digits and low-but-positive fixed-income returns.

According to Northern Trust’s Capital Market Assumptions five-year outlook, the global economy will experience an average annualized growth of 2.2 percent in real terms over the next five years, along with controlled inflation and accommodative monetary policy. Northern Trust predicts that interest rates will remain low, and inflation will continue to be minimal due to a combination of muted global growth and timid policy responses.

Issued on an annual basis, the Capital Market Assumptions report displays long-term asset class return expectations and informs the investment decisions and asset allocation recommendations made by Northern Trust. According to the latest release, “equity returns are expected to be muted by historical standards, due to slower growth and modest margin and valuation pressures.”

Northern Trust expects developed markets to return 5.7 percent annually. The highest average annualized equity return is forecast for Latin American emerging markets at 8.9 percent, compared with expectations of 6.1 percent for the overall emerging markets. The expected return for emerging markets represents a material reduction from last year’s forecast of 8.3 percent, and represents a mere 0.4 percent return premium to developed markets. The lowest estimates are for Canada and Japan; both expected to deliver 4.5 percent annually.

Real asset returns are expected to be mainly in line with equities, with natural resources expected to deliver an average annualized return of 6.1 percent and real estate and global listed infrastructure expected to return 6.3 percent and 5.8 percent, respectively. In the alternatives space, Northern Trust expects the private equity sector to deliver an annual return of 7.7 percent. Hedge funds, meanwhile, are expected to return 3.7 percent annually. The hedge fund return forecast reflects a combination of expected alpha (0.5 percent) and expected returns from risk exposures (3.2 percent).

The forecasts for all asset classes are informed by six themes that Northern Trust believes are shaping the investment landscape for the coming years. Each of the six themes listed below helps explain Northern Trust’s long-term outlook:

The executive summary of Northern Trust’s Capital Market Assumptions five-year outlook can be downloaded below:


Photo by Markus Spiske on Unsplash

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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