Fri, Nov 27, 2015
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Lyxor Sees Poor Bond Performance, Attractive Equities in Coming Decades

Friday, January 20, 2012
Opalesque Industry Update - For almost a quarter of a century, bond markets have rivaled with equity markets in terms of performance while offering half the volatility. Indeed, bond markets have benefited from a downtrend in long-term yields against a backdrop of disinflation and greater risk aversion. Meanwhile, equity markets have seen the Asian crisis, the Internet bubble and the sub-prime crisis.

Based on economic projections drawn up by key official organizations, as well as long-term statistical relationships, Lyxor’s research team has developed a model for forecasting long-run asset returns. The aim is to guide investors in their choice of assets for the coming decades, in particular making room for alternative investments. The relationships used are presented in Lyxor’s sixth White Paper: “Strategic Asset Allocation”. In light of the current debt crisis, Lyxor has updated its model and identified the following points:

> Poor bond performances expected. If the scenario of developed economies’ GDP growth steadily returning to its potential is confirmed, long-term yields will rise and weigh on government bond performance. In the longer term, as the influence of economic cycles fades, current forecasts for growth in the working population suggest yields will remain around 5%.

Should inflation climb to close to 10% by 2050, Lyxor’s model would see bond markets underperform inflation by around 3.5% a year. This makes the asset class even riskier for the decades ahead.

> Equities are attractive. If the scenario of developed economies’ GDP growth steadily returning towards its potential is confirmed, a gradual emergence from the crisis could make investors less risk averse and bring share prices back to valuations more in line with their historical levels. In the longer term, they should outperform bonds by around 5%, offering a risk premium similar to that seen up until a quarter of a century ago.

The results of this research should encourage investors to reconsider their strategic allocation for the coming decades. Indeed, the bond markets’ status is in doubt and should prompt fresh thinking on the role of equities and alternative asset classes, particularly hedge funds.

Reference: Eychenne K. and Roncalli T. (2011), Strategic Asset Allocation – An Update Following the Sovereign Debt Crisis, Lyxor Short Paper Series, November,

(research flash)

Full short paper: Source

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Other Voices: Hedge fund marketing and the selling cycle[more]

    By Bruce Frumerman. How long is the selling cycle now? That’s a question my financial communications and sales marketing consulting firm has been asked on a regular basis by hedge fund firm owners and sales people, ever since we opened the doors to our firm in 1987 pre-crash. Wa

  2. People - Solus Alternative Asset Management adds chief strategist from BTIG[more]

    From Daniel Greenhaus joined hedge fund manager Solus Alternative Asset Management as managing director and chief strategist. He will work closely with Chris Bondy, Solus’ chief economist, managing director and executive vice president, said Chris Pucillo, CEO and chief investmen

  3. Opalesque Roundtable: Seeding deal terms can be onerous for hedge funds[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Executives from fund of funds firms, family offices, a placement agent, a private equity firm, and an accounting firm gathered in Connecticut last month for the

  4. Opalesque Roundtable: Family offices flock to co-investment[more]

    Bailey McCann, Opalesque New York: Co-investments have been a hot topic for pension funds in recent years, as they try to move away from high fees and improve transparency. But now, family offices are more readily getting into the mix and establishing in-house deal teams, according to the delega

  5. More institutional investors invest in CTAs compared to last year despite dissatisfaction with performance[more]

    Benedicte Gravrand, Opalesque Geneva: "Despite a strong start to 2015 for CTAs in Q1, commodity market conditions have made return generation difficult for fund managers over much of the rest of the year to date," says Preqin’s November