Sat, Nov 29, 2014
A A A
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, www.lyxor.com.

(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. Unlucky Paulson & Co. rebrands $1.6bn Recovery Fund after 13% drop[more]

    From Businessweek.com: A maturing U.S. economic recovery is prompting Paulson & Co. to change course. The $19 billion hedge fund firm, led by billionaire John Paulson, told investors on a conference call this month that the Paulson Recovery Fund will be renamed Paulson Special Situations Fund on Jan

  2. Opalesque Roundtable: Islamic Finance races ahead with Sukuk, the first managed account platform, and foreign demand[more]

    Komfie Manalo, Opalesque Asia: A number of developments took place within Islamic finance in the past years, including the launch of a Islamic managed account platform and the further growth of the sukuk space that saw this instrument evolve from being a type of an ABS security that was rarely

  3. Fund Profile - A complex hedge fund strategy works for United Technologies[more]

    From Institutionalinvestor.com: Reports that portable alpha is dead have been greatly exaggerated, as Mark Twain might have phrased it. Another Connecticut Yankee, giant United Technologies Corp., is gearing up to grow its successful, nearly decade-long portable-alpha program. The UTC strategy took

  4. Opalesque Exclusive: The unintended consequences of Basel III[more]

    Benedicte Gravrand, Opalesque Geneva: Bijesh Amin, co-founder and managing director of Indus Valley Partners (IVP), a technology solutions and services firm focused on the alternative asset management industry, has recently observed

  5. Legal - Six years after AIG takeover, lawsuit reveals another potential buyer[more]

    From Institutional investor.com: When former Treasury secretary Henry (Hank) Paulson Jr. testified in a suit last month about the U.S. government takeover of American International Group, his words were — mostly — numbingly familiar. Explaining the “punitive” terms set for the September 2008 bailout