26 January 2024

2024 Long-Term Capital Market Assumptions

See the big picture with J.P. Morgan Asset Management's Long-Term Capital Market Assumptions (LTCMAs) which incorporates more than 200 major asset and strategy classes.

The 28th annual edition of J.P. Morgan Asset Management's Long-Term Capital Market Assumptions (LTCMAs), which provides 10-to-15-year risk and return projects for more than 200 major asset and strategy classes, explores how investors can build on the 60/40 portfolio – using new axes of diversification to navigate an economy in transition from disinflation to reflation and from easy monetary policy to higher costs of capital.

Executive Summary: Smarter portfolios for a world in transition

A 60/40 asset allocation (60% equities, 40% bonds) is still a great starting point for portfolios. And we can build on it in many ways.

That's because much of what defines the investing environment is in transition.

Consider:

  • The economy is in transition as persistent disinflation transitions to two-way inflation risk.
  • Policy is in transition as ultra easy monetary policy transitions to more traditional monetary policy and fiscal restraint shifts to fiscal activism.
  • Technology is in transition as the potential of artificial intelligence begins to emerge.
  • Climate is in transition from conventional energy to renewable energy.

Extend, expand and enhance the 60/40

To navigate a world in transition we recommend that investors build on the 60/40 portfolio and:

Extend – out of cash and delve deeper within core assets

We forecast that one dollar in cash could be worth only USD 1.04 in real terms in 10 years. In a 60/40 with a 25% alternatives allocation, it could be worth USD 1.62. (The principle applies across currencies.)

Expand – the opportunity set, especially with alternative assets

International developed equities can capture rerating and currency upside, real assets improve inflation resiliency.

Enhance – portfolio outcomes through active allocation and manager selection

As money is no longer free, markets will reward a more selective approach to asset purchases.

In this year's Long-Term Capital Market Assumptions, forecasts across most assets offer attractive long-term returns. Investors can use the whole toolkit to extend, enhance and expand their portfolios.

Higher bond returns, lower equity returns

With high prevailing policy rates, our Global Aggregate bond forecast jumps 40bps to 5.1%. Our equity return forecasts fall in the wake of the 2023 rally, but not as far as might be expected. Our forecast for global equities dips 70bps to 7.8%. U.S. large cap declines from 7.9% to 7.0%.

Harnessing the power of private markets

The case for investing in private markets strengthens, especially given the inflation resilience that alternatives have demonstrated. Expected returns for core U.S. real estate rise 180bps to 7.5%. Forecasts for venture capital rise sharply and fall modestly for private equity (following equity market returns lower) and hedge funds.

Across many asset classes, the active alpha outlook improves. But make no mistake: Portfolio diversification will be a persistent challenge, especially when inflation risk is two-way and stock-bond correlation is no longer reliably negative. Staying invested beats hiding out in cash over virtually all time horizons. But investors will need to use all the tools available to build smarter portfolios for a world in transition.

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