Roberts Nash Advisory Group

Long-term Investment Expectations

Martin Lefebvre, CIO and Strategist

You will  find attached a publication on our long-term investment expectations.

In this review we present our long-term return expectations for major asset classes such as bonds, equities, and some alternatives.

  • With U.S. economic growth and inflation firming up, higher short-term interest rates are to be expected over the next five years as the Federal Reserve continues to normalize its monetary policy.

  • We find that the path of least resistance for longer-term bond yields will be up over the next five years. Because duration risk is at historical levels, such an event would likely entail negative nominal returns in the first few years, before stabilizing around coupon rates, leaving the annualized rate of return well below its long-term historical average.

  • In that environment, shorter-duration higher-coupon corporate bonds would seem a better investment, on an absolute, relative and risk-adjusted basis.

  • After eight years of exceptional returns during the financial crisis recovery, we find that equity markets are not a bargain anymore and we expect an annualized total return of 6% for U.S. large cap equities over the next five years. This is lower than the long-term historical growth rate.

  • All in all, as traditional portfolio returns will be lower than in the past, it is time to think outside the box. As such, strategies aiming at higher absolute returns or less volatility should be contemplated at this point.

  • We continue to advocate the inclusion of non-traditional fixed-income funds, such as those linked to interest rate spread strategies, unconstrained global bond funds, or structured products. To limit volatility and downside, idiosyncratic risk should be diversified with smart beta strategies.

  • Finally, we feel that private investments – whether linked to real estate, infrastructure, farmland or timberland – will offer higher returns with much less volatility than traditional assets.

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** I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial **

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