As investors on Wall Street and beyond get ever-more euphoric, AQR Capital Management is getting ever-more pessimistic.
The quant manager has yet again cut its return projections for major assets over the next five to 10 years across developed and emerging markets.
A 60/40 U.S. portfolio of stocks and bonds is now seen delivering just 1.4% after inflation. The long-term average is more like 5%. Expectations in 2019 were for 2.9% and last year it was 2.4%.
Negative real cash returns are now expected in all major markets with only the Canadian dollar performing worse than the greenback.
The projected return from high-yield U.S. debt has more than halved.
'Soberingly low'
Greenwich, Connecticut-based AQR has been warning for years that investor objectives are going to be increasingly hard to meet amid “soberingly low” returns. The thinking is that a combination of rich asset prices and low interest rates make it difficult to match historic performance.
Loose monetary policy and huge stimulus injections have some investors questioning the validity of traditional long-term approaches.
“Since we started publishing our CMAs in 2014, equities have become somewhat more attractive relative to bonds, but estimates for both asset classes have moved lower,” AQR said in its outlook. “All assets’ expected real returns are depressed by exceptionally low real cash rates.”
The projections “are highly uncertain, and not intended for market timing,” the firm said. — Additional reporting by Justina Lee
