Thu, Aug 17, 2017
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. Opalesque Exclusive: Albright Capital puts a value lens on emerging markets[more]

    Bailey McCann, Opalesque New York: Over the past decade, investors have steadily increased investments in emerging markets private funds. Allocations to the cohort have increased from $93 billion in December 2006 to $564 billion in September 2016, according to data from research firm Preqin. Howe

  2. Other Voices: Crisis risk offset; about time?[more]

    This article was authored by Russell Barlow, global head of hedge fund solutions at London-based Aberdeen Asset Management. Like the ubiquitous force of gravity, when financial markets rise they must fall. The quest

  3. Comment: "Long-Term Investing": What managing drawdown risk can do to your long-term returns[more]

    Matthias Knab, Opalesque: Real Investment Advice writes on Harvest Exchange: Last week, I was having lunch with a prospective portfolio management client discussing the curre

  4. Jasper Capital International joins Hedge Fund Standards Board[more]

    Komfie Manalo, Opalesque Asia: Diversified and systematic investment firm Jasper Capital International has become the second China-based signatory to the Hedge Fund Standards Board (HFSB), an organization that brings hedge fund managers and investors together to set standards for the hedge fund i

  5. Investing - Hedge-fund honchos including David Tepper are loading up on Alibaba, Billionaire hedge fund manager Stanley Druckenmiller is betting big on the Chinese consumer, Big-name U.S. hedge funds shed healthcare stocks during the rally in second-quarter, U.S. hedge funds bearish on FAANG stocks in second-quarter, Hedge fund titan Viking Global made a $680 million bet on scandal-plagued Wells Fargo[more]

    Hedge-fund honchos including David Tepper are loading up on Alibaba From CNBC.com: David Tepper's Appaloosa Management and three other he ge funds took new stakes in Chinese e-commerce giant Alibaba in the second quarter, according to the latest quarterly filings. Appaloosa disclos