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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.
We think global equity returns will be below long-term historical averages — a consequence of the slow growth environment.

Our expectation for emerging market equity returns of 6.1% is a material reduction from last year’s forecast and a mere 0.4% return premium to developed markets. Our return forecast for developed markets is 5.7%.
Outlook Rationale
Emerging market equities continue to be negatively affected by a shifting economic model and continued trade tensions; we expect this will also keep valuations low.

Developed market equities will feel the pressure of slow revenue growth, further pressured by some negative profit translation. We also expect valuations to remain within a higher structural range supported by low interest rates and milder economic cycles.
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Developed Market Equities Total Return Forecast
Emerging Market Equities Total Return Forecast
Equity Building Blocks: Regional Details
Slowing earnings growth and some valuation and margin pressure lead to subdued returns.
Graph: Equity Building Blocks: Regional Detail
Graph: Equity Building Blocks: Regional Detail
Source: Northern Trust Global Asset Allocation.
Yield curves – globally – continue to test investor expectations.

Our Global Growth Restructuring, Stuckflation 4.0  and Monetary Makeover  themes set the stage for a new global easing cycle leading to our 1.8% interest rate forecast for 10-year U.S. Treasury bonds, 1.0% for 10-year German bonds, and 0.3% for 10-year Japanese government bonds.

We expect a 4.8% global high yield annual return. Lower interest rates will both drive the ongoing search for yield and support asset class fundamentals.
Outlook Rationale
Globally, we expect inflation to remain lower for longer.

We expect steeper yield curves as short-term yields drop, with the U.S. posting higher rates across the curve than most developed markets.

Because we expect interest rates to remain below what is priced into forward curves, we anticipate total returns will continue to outpace starting point yields.
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Expected Interest Rate Forecast For 10-Year U.S. Treasury Bonds
Expected Annualized Return For Global High Yield
Fixed Income Return Building Blocks
Low fixed income return forecasts are due to low yield starting points.
Graph: Fixed Income Return Building Blocks
Fixed Income Return Building Blocks
Source: Northern Trust Global Asset Allocation, Bloomberg. Coupon return calculated as yield-to-wrost on 6/30/2019
Our forecasts for natural resources and global real estate include a -0.5% qualitative adjustment, leading to an expected 6.1% and 6.3% return, respectively.

Our 5.8% forecast for global listed infrastructure includes a +0.5% adjustment to capture potential opportunities and return benefits from the renewed search for yield.
Outlook Rationale
Slower global growth, the move away from fossil fuels and potential regulatory headaches temper our outlook for natural resources, while global real estate shows potential as an asset class transitioning to new growth opportunities and providing attractive yields.

Global listed infrastructure should benefit from term exposure, and investors may view the asset class as a purer bond proxy than global real estate, without the fundamental challenges.
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Natural Resources Total Return Forecast
Global Real Estate Total Return Forecast
Global Listed Infrastructure Total Return Forecast
What exactly am I buying?
Real assets have a variety of different risk exposures that must be understood.
Source: Northern Trust Global Asset Allocation, Bloomberg. Regression calculating factor exposure run from 12/31/2002 to 3/31/2009.
Outlook: Manager Selection Drives Return
We expect private equity to generate a 2.0% premium over global equities, a conservative forecast in relation to recent results from small to mid-sized managers.

Our 3.7% hedge fund return forecast represents the combination of expected alpha (0.5%) and expected returns from risk exposure (3.2%).
Outlook Rationale
Private equity liquidity premiums and alpha generation have remained solid, especially for managers investing in smaller deal sizes.

Hedge fund alpha has been steadily shrinking over the past 30 years. While our low-single-digit hedge fund return expectation assumes this low average alpha, but we recognize the dispersion across individual strategies. When it comes to hedge funds, the selection process is paramount.
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Private Equity Return Forecast
Hedge Fund Return Forecast
The average hedge fund has slipped over time, but varies significantly by manager.
Hedge Fund versus Balanced Portfolio — 10-Year Rolling Returns
Hedge fund alpha contribution
Hedge fund total return
Hedge fund risk contribution
Balanced portfolio total return
Source: Northern Trust Global Asset Allocation, Northern Trust Portfolio Construction Desk, Bloomberg. Data from 12/31/2000 to 3/30/2019. Balanced portfolio is 50% MSCI ACWI / 50% Bloomberg Barclays Global Aggregate Index. Past performance does not guarantee future results.
6 Key Themes
Our Capital Market Assumptions five-year market outlook provides insight into the forces shaping the investing landscape for the coming years. Here are the six key themes driving our tactical outlook and 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.
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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.
Bob Browne, CFA
Northern Trust
Chief Investment Officer
Brad Camden, CFA
Asset Management
Director, Fixed Income Strategy
Michael DeJuan, CIM®, CAIA
Asset Management
Director, Portfolio Strategy
Peter Flood
Asset Management
Director, ETF Investment Strategy
Jim McDonald
Northern Trust
Chief Investment Strategist
Peter Mladina
Wealth Management
Director, Portfolio Research
Katie Nixon, CFA, CIMA, CPWA
Wealth Management
Chief Investment Officer
Dan Personette, CFA
Asset Management
Director, Interest Rate Strategy
Brad Peterson
Wealth Management
Senior Portfolio Manager
Dan Phillips, CFA
Northern Trust
Director, Asset Allocation Strategy
Colin Robertson
Asset Management
Managing Director, Fixed Income
Chris Shipley
Asset Management
Director, Fundamental Equities
Wouter Sturkenboom
Asset Management
Chief Investment Strategist, EMEA and APAC
Carl Tannenbaum
Northern Trust
Chief Economist
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 more than $1 trillion of assets, 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.

As engaged contributors to our communities, we consider it a great privilege to serve our investors and our communities with integrity, respect, and transparency.

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.