Tue, Mar 3, 2015
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. Investing - Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched, Myriad hedge fund sold bulk of its Alibaba stake last year[more]

    Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched From Valuewalk.com: As hedge fund manager Seth Klarman, leader of the $28 billion Baupost Group, reviews 2014 performance and considers investors gained near 7 percent on the year, he cons

  2. Investing - As rig count falls, hedge funds pile into long crude futures, Parus tactically shifts long/short exposure ratios, Mario Draghi outflanking Kuroda as bearish euro bets surge, Prime Capital’s 500.com bet derailed after 41% drop[more]

    As rig count falls, hedge funds pile into long crude futures From 247wallst.com: In the week ended February 27, the total number of rigs drilling for oil in the United States came in at 986, compared with 1,019 in the prior week and 1,430 a year ago. Including 281 other rigs mostly drill

  3. Opalesque Exclusive: dbSelect’s top ten FX strategies average almost 10% in January[more]

    Benedicte Gravrand, Opalesque Geneva: In one of Deutsche Asset & Wealth Management (AWM)’s hedge fund platforms, called dbSelect, a number of FX Strategies did very well in January. dbSelect is a managed investment platform for unf

  4. Opalesque Exclusive: SEC’s Mark J. Flannery warns hedge funds against valuation misconduct[more]

    Komfie Manalo, Opalesque Asia: Securities and Exchange Commission chief economist and director of Division of Economic and Risk Analysis (DERA) Mark J. Flannery has warned of the risks posed by market misconduct, particularly in the true valuation of assets by hedge fund managers. In his

  5. Dymon Asia's $3bn macro hedge fund lost 10.45% in January[more]

    From Reuters.com: Dymon Asia's $3.1 billion macro hedge fund lost 10.45 percent in January, performance data seen by Reuters showed, a month where many peers lost heavily after a surprise rise in the Swiss franc. Singapore-based Dymon, set up by Danny Yong, a former founding partner and chie