Research Affiliates asset class forecasts

[MichaelB]

Research Affiliates, the firm run by Rob Arnott, has published neat tool that shows their forecast for long term (10 year) returns for each asset class. The tool is here. The methodology is at the bottom of the page. GMO fans will find a great deal of similarity, the approach is based on CAPE and economic forecast, but this is much more detailed and specific, covering individual countries and many more sub-asset classes.

I have no opinion regarding the quality of the forecast. Folks interested in CAPE or PE10 type valuations and analysis may be frustrated that it's use has been limited to US equities, here is is broadly applied.

 

[Brat]

Interesting that it forecasts the highest return to be in emerging markets.

 

[eta2020]

But it is not surprising that US Cash has lowest/negative return

 

[haha]

Thank you Michael. This is an excellent site. I want to draw attention to these two short videos by John West. They are profound, and bring up issues that I have noticed over the years do not get much traction on discussion boards. IMO, there are no throwaway words in either video.

​Attention 3-D Shoppers

Ha

 

[eta2020]

Ha...those are indeed very interesting videos. But if I think about pillar named "stocks" it would include Emerging Markets and it would include index with boring companies like KO, PG, CL, MO and like (or individual stocks).

Thou without question index like s&p 500 would be core holding and would suffer in lost decade.....

And if you own great US business which sells/grows heavily in Emerging Markets like PM or KO.... what does that give you?

 

[haha]

Really don't know any answers to post above. Good points, but who knows?

This site is emphasizing numerical comparisons along certain dimensions. I have my problems with this, but it can certainly simplify a lot of data.

Here's one takeaway-UK and Brazil have almost identical forecasted Sharpe ratios, and Russia blows them both away on this dimension. UK would seem to dominate the US, and perhaps Brazil dominate nations like Colombia or India or Mexico. Of course these are all different in many ways that cannot be reduced to forecasted Sharpe ratios. Certainly Russia appears to be in a class by itself. But is it really that different from Brazil? How certain are politics in Brazil?

And certainly, given the date here, I would prefer Russia over China. Neither one is a paragons of fiscal or state virtue, but Russia is at least very cheap. Either Russia or China could conceivably expropriate everything, or not. But some would say that US corporate taxation is tantamount to expropriation. And unlike Russia, US valuations give us no compensation for this.


Ha

 

[Lsbcal]

I noticed the data on some emerging market countries (Russia, India, China, Brazil) goes back to only 1996. So this PE10 median data is kind of skimpy. Let's not forget the PE10 uses 10 years of earnings data.

I may be way off but Putin's type of Russia is a turn off for a capitalist pig like me.

 

[CaliforniaMan]

Research Affiliates, the firm run by Rob Arnott, has published neat tool that shows their forecast for long term (10 year) returns for each asset class. The tool is here. The methodology is at the bottom of the page. GMO fans will find a great deal of similarity, the approach is based on CAPE and economic forecast, but this is much more detailed and specific, covering individual countries and many more sub-asset classes.

I have no opinion regarding the quality of the forecast. Folks interested in CAPE or PE10 type valuations and analysis may be frustrated that it's use has been limited to US equities, here is is broadly applied.

Outside of the calculation methods, dots on a graph don't give much useful insight anyway without the associated confidence bands. But then it would probably show pretty much nothing useful, and not look so pretty.

 

[Cut-Throat]

Is this a thread on why Active Money Managers are going to beat the Indexers? If so, how long a time frame will they continue to beat the indexers? And, will you place your bets on them?

I'm sticking with Vanguard Target Retirement Income. Boring, I know.

 

[gcgang]

Is this a thread on why Active Money Managers are going to beat the Indexers? If so, how long a time frame will they continue to beat the indexers? And, will you place your bets on them?

I'm sticking with Vanguard Target Retirement Income. Boring, I know.

Target-Date Funds: No Happily Ever After in This Fairy Tale

Boring? Yes. Financially rewarding? No.

Arnotts website had this on target date funds, demonstrating that the assumptions that underlie target date funds, hi equity when young for growth, lower equity for stability in retirement, has not worked well. But the concept is bringing in lots of assets for the mutual fund companies.

 

[Cut-Throat]

Target-Date Funds: No Happily Ever After in This Fairy Tale

Boring? Yes. Financially rewarding? No.

Arnotts website had this on target date funds, demonstrating that the assumptions that underlie target date funds, hi equity when young for growth, lower equity for stability in retirement, has not worked well. But the concept is bringing in lots of assets for the mutual fund companies.

I think you misread my post. I am not in favor of the 'Target Date Funds Industry' as this article points out. I think an investor should chose his asset allocation and find a TDF that matches it, if he wants to invest in a TDF Fund. Rather than pick his retirement date. Or invest in any group of index funds if that is his choosing. Preferably from Vanguard which is low cost. For me that is the TD Retirement Income Fund. Which has been financially rewarding. I don't endorse all Target Date Funds However. As I don't endorse all Mutual Funds that Vanguard sells either. I was just stating what works for me personally for my level of risk.

Also, if the alternative is having an investor hand over all of his money to a Full Service Broker, to take care of his retirement, I think almost any TDF Fund would be better.

 

[INTJ10]

My take on the RA website is that they are suggesting that non-US investments have better prospects than US stocks/bonds. That is probably an over simplification but that is the way my brain works.

The Vanguard Retirement Income Fund includes 14% international bonds and 9% international stocks so it seems like there is some convergence in the two approaches.

Also, as pointed out above, a number of US based companies make a large portion of their money overseas so an investment in US companies gives you international exposure.

 

[gcgang]

Yes, lots of US companies have international exposure. But IMHO their point is that you can either pay 20 x CAPE with US company, or 10x CAPE with international based. They seem to believe that price/value matters.