JP Morgan Asset Management has forecast a solid future for the classic 60/40 portfolio in its 2025 Long-term Capital Markets Assumptions (LTCMA) report that debuts a NZ-dollar performance estimate.
The LTCMA paper says a 60/40 blend of shares and equities is expected to return 6.4 per cent over the next 15 years in US currency terms – a drop of 0.6 per cent on the 2024 forecast but still higher than starting point valuations imply.
“Given that a naive mark-to-market of last year’s 60/40 return forecast would have slashed our forecast by well over 100bps, investors in balanced portfolios look to be well placed to capture the rewards of the improving economic landscape,” the report says.
Balanced fund investors in Australia and NZ look set to reap slightly higher longer-term returns, buoyed by a stronger US dollar.
Andrew Creber, JP Morgan Asset Management Australia and NZ chief, said in a release: “Some of the key highlights across the AUD and NZD returns include the resilience in the 60/40 portfolio returns which is unchanged in AUD terms at 7.0% from last year.
“Our 60/40 portfolio in NZD terms provides a similar result at 6.90%. The benefit from anticipated currency depreciation means that Australian investors can continue to go global as they seek to enhance returns.”
While Australia looks set to be one of the better-performing developed market economies over the next 10 to 15 years, the higher growth also comes with the prospect of higher inflation compared to NZ.
Craig said the report included the NZ currency returns overlay for the first time following “increasing demand from our clients”.
Earlier this year the super-sized US financial firm struck up an arrangement with Craigs Investment Partners to build products and share ‘global research capabilities’ for the NZ wealth management network.
Nikko Asset Management has also long used JP Morgan as underlying alternative assets manager and, more recently, in its global equities fund-of-funds.
Overall, the LTCAM retains a positive long-term outlook for the global economy and markets.
“We anticipate that the next 10 to 15 years will be characterized by higher fiscal spending, high capital investment and higher neutral cash rates, but also by higher growth,” the report says. “Expected returns remain elevated by historical standards, and we believe that the global economy today is healthier than it was for much of the last decade.”
In particular, artificial intelligence is expected to add 0.2 per cent to developed markets growth each year during the next decade or so in an estimate the paper describes as “potentially conservative given the transformative potential of the technology”.
George Gatch, JP Morgan Asset Management chief, says in the report that the LTCMA taps into expertise supplied by more than 100 investment professionals covering risk-return expectations for over 200 assets denominated in 19 currencies.
“It is important to note that while our LTCMAs are driven by return expectations for indices or median managers, we believe there are a number of opportunities to outperform, particularly through active management and security selection,” Gatch says.