03 Feb White Paper – 2016 Long-Term Capital Market Forecasts
By Voya Investment Management
Cyclically sensitive assets like equities and the riskiest credit instruments are likely to provide risk-adjusted returns superior to those of most fixed income assets, particularly government bonds, over the ten-year horizon, though the relative attractiveness is becoming more balanced than it was a year ago.
Our long-term capital market forecasts provide our estimates of expected returns, volatilities and correlations among major U.S. and global asset classes over a ten-year horizon. These estimates guide strategic asset allocations for our multi-asset portfolios and provide a context for shorter-term economic and financial forecasting.
As has been the case for the past six years, our forecast models an explicit process of convergence to a steady-state equilibrium for global economies and financial markets through 2025. We make this explicit forecast in recognition of the ongoing effects of the 2007–09 financial crisis and recession, the European debt crisis, and the fiscal and monetary policy responses to these events. Although the world economy is several years past its most acute point of crisis in 2008 and the U.S. economy has been recovering from the Great Recession for more than six years, a number of economic and financial variables remain far from levels consistent with the steady state.