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Alternative Market Briefing

Alternatives viewed as portfolio essentials for 2021

Tuesday, December 01, 2020

Bailey McCann, Opalesque New York:

Alternatives will be an essential component of portfolios going forward, according to research in the newly released 2021 Long-Term Capital Market Assumptions from J.P. Morgan Asset Management. Data in the report suggests that public asset market return expectations have fallen sharply, prompting investors to look elsewhere for higher returns. Investors are pivoting to alternatives and the report notes that manager selection has never been more important.

Looking at equities, J.P. Morgan says that that the impact of elevated valuations is most stark for U.S. large cap equities, where the return forecast falls by 1.5%, to 4.1%. This pulls global equity returns down by 1.2%, to 4.8%. Listed fixed income returns are also likely to be lower. JPAM suggests that most government bonds will deliver negative real returns over the next 10-15 years. JPAM has also extended the timeline for global interest rate normalization to at least 2024. These trends will put pressure on a traditional 60/40 portfolio and are pushing institutions to increase their allocations to alternatives to make up for any performance shortfalls.

"It is our view that alternatives are an essential part of portfolio construction," says Pulkit Sharma, Head of Real Assets and Alternatives Investment Strategy and Solutions at J.P. Morgan in an interview with Opalesque. "We see the market environment improving for hedge funds, specifically as volatility increases. This coul......................

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