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Asset Class Forecasts And Return Expectations
From the bond markets to equities, real assets and alternatives, get our asset class forecasts and return expectations to help guide your asset allocation decisions.
Outlook: HIGHER RATES AT LAST
Bonds, aided by higher yields, may bounce back some from historically high losses, but we expect modest performance. Flat yield curves likely mean dependence on coupon payments, due to little price appreciation. High yield bonds could benefit from higher credit spreads and stable fundamentals.
2.7%
Global Investment Grade Annualized Return Forecast
7.5%
Global High Yield Annualized Return Forecast
CLIPPING COUPONS
Flat yield curves and appropriately priced securities mean returns will likely match yield to maturities.
Source: Northern Trust Asset Management, Bloomberg. Coupon return calculated as yield to worst on 6/30/2022.
Capital Market Assumption (CMA) model expected returns do not show actual performance and are for illustrative purposes only. They do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, views, techniques and forecasts noted are subject to change without notice.
Outlook: MID-SINGLE-DIGIT RETURNS
Lower valuations provide some support, but higher interest rates likely will cap the upside for valuations. Further, historically high corporate profit margins face deterioration with inflation and a slowing economy. China’s low COVID-19 struggles increases the likelihood of economic shutdowns, a risk for emerging markets.
6.1%
Global Equities Annualized Return Forecast
6.2%
Developed Market Equities Annualized Return Forecast
5.8%
Emerging Market Equities Annualized Return Forecast
NEXT-FIVE-YEAR FORECASTS ARE LOWER — BUT ACCEPTABLE
We think high profit margins will shrink, but lower valuations will revert higher — allowing decent returns.
Source: Northern Trust Asset Management. EM is emerging markets.
Capital Market Assumption (CMA) model expected returns do not show actual performance and are for illustrative purposes only. They do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, views, techniques and forecasts noted are subject to change without notice.
Outlook: NATURAL RESOURCES ATTRACTIVE
With the inflation surge, inflation-sensitive real assets play an increasingly key role in a diversified portfolio. We expect all real assets to perform well over five years, but surging commodity prices because of shortages make natural resources particularly attractive.
7.3%
Natural Resources Annualized Return Forecast
6.8%
Global Real Estate Annualized Return Forecast
6.0%
Global Listed Infrastructure Annualized Return Forecast
DIVERSIFICATION ON DISPLAY
Real assets should shine in a more uncertain and higher inflationary risk regime.
Source: Northern Trust Asset Management, Bloomberg. Risk free is defined as theoretical rate of return of an investment with zero risk. Market is defined as exposure to global equity movements. Term is defined as exposure to interest rate movements. Credit is defined as exposure to default risk. Macro commodity is defined as exposure to commodity price movements. Qualitative adjustment is defined as modifications to the quantitative model, specifically relating to natural resources and global real estate.
Capital Market Assumption (CMA) model expected returns do not show actual performance and are for illustrative purposes only. They do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, views, techniques and forecasts noted are subject to change without notice.
Outlook: APPEALING PREMIUMS FOR SOME INVESTORS
Private investments provide premiums over public market counterparts. Hedge funds recently have shown more potential to deliver alpha. The wide return dispersion among strategies means the manager selection process remains paramount.
9.6%
Private Equity Annualized Return Forecast
6.5%
Private Credit Annualized Return Forecast
5.4%
Hedge Fund Annualized Return Forecast
FOUR PREMIUMS AND A DISCOUNT
Private credit — still an attractive income provider — has a difficult comparison with high yield.
Source: Northern Trust Asset Management, Bloomberg. Public alternative is defined as expected returns of similar investments available to the public such as bonds and publicly listed equities. Expected premium is defined as the excess expected return compared to the public alternative. Expected discount is defined as the expected decrease in return compared to the public alternative.
Capital Market Assumption (CMA) model expected returns do not show actual performance and are for illustrative purposes only. They do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, views, techniques and forecasts noted are subject to change without notice.
6 Key Themes
Our Capital Market Assumptions five-year market outlook provides insight into the forces shaping the investing landscape for the coming years. These six key themes drive our outlook and inform asset allocation for the next five years.

Building Smart Portfolios

Our forward-looking, historically aware investment approach powers a breadth of capabilities and solutions — spanning a full spectrum of asset class strategies and investment styles — to meet a variety of portfolio needs.
Download Our 5-Year Outlook
Find out what investors should expect in the years ahead.
Download Executive Summary
Every year, Northern Trust’s Capital Market Assumptions Working Group develops forward-looking, historically aware forecasts for global economic activity and financial market returns — which drive our five-year asset class return expectations and inform our asset allocation decisions.

All of this comes together in the form of our long-term strategic asset class allocation suggestions, which are used by institutional and individual investors worldwide.
Contributors
Dan Phillips, CFA
Director, Asset Allocation Strategy
CMA Working Group Chair
Dan Ballantine, CFA
Investment Strategist
Ryan Boyle
Senior Economist
Mark Carlson, CFA
Senior Investment Strategist,
Fixed Income
Colin Cheesman, CFA
Senior Investment Analyst
Michael De Juan
Director, Portfolio Strategy
Dan Farrell
Director, EMEA Cash Management
Chris Huemmer, CFA
Senior Investment Strategist,
Equities
Michael Hunstad, Ph.D.
Chief Investment Officer,
Global Equities
Tim Johnson
Head of Portfolio Solutions,
Global Fixed Income
Eric Lee, CFA
Investment Strategist
Angelo Manioudakis
Chief Investment Officer
Jim McDonald
Chief Investment Strategist
Julie Moret
Global Head of Sustainable Investing and Stewardship
Katie Nixon, CFA
Chief Investment Officer
Wealth Management
Dan Personette, CFA
Director, Interest Rate Strategy
Brad Peterson, CFA
National Portfolio Advisor
Wealth Management
Colin Robertson
Co-Head of Fixed Income
Chris Shipley
Chief Investment Strategist,
North America
Wouter Sturkenboom, CFA
Chief Investment Strategist,
EMEA and APAC
Thomas Swaney
Chief Investment Officer,
Global Fixed Income
Carl Tannenbaum
Chief Economist
Eric Williams
Director, Credit Strategy
Peter Yi, CFA
Director, Cash Managment
Northern Trust Asset Management

Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments, so they can confidently realize their long-term objectives.

Entrusted with $999.1 billion of investor assets as of September 30, 2022, we understand that investing ultimately serves a greater purpose and believe investors should be compensated for the risks they take — in all market environments and any investment strategy.

$885 Billion in A U M1

That’s why we combine robust capital markets research, expert portfolio construction and comprehensive risk management to craft innovative and efficient solutions that deliver targeted investment outcomes.

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1Assets under management as of December 31, 2018. For the Northern Trust Asset Management entities included in the A U M total, please see disclosure at end of this page.