• JP Morgan and Capital Economics are both forecasting the US to generate the lowest annualised returns of all the equity regions over the next decade.
• Japan is expected to return over 8% per annum over the next decade as their corporate governance evolves.
• Latin America is expected to produce almost double digit annualised returns up until 2033 after returning near zero for the past decade.

Bowmore use a wide variety of data sources for informing investment decisions and deciding upon our asset allocation. This can be as simple as reading the news or as complex as one of our pieces of analytics software. We consult economists and meet with other asset managers, all to gather as much information as possible to inform our decision making. One of the data points we look at are expected returns. We don’t take any third-party’s expected returns as gospel as we formulate our own view, but it is always interesting to have a look and see what others are thinking.

JP Morgan produces long-term (10-15 years) expected return charts that are updated annually. You will note from the below that they have put Japan at the top of their list with expected returns of a little over 8% per annum. The corporate governance revolution in Japan is reinvigorating the market, valuations remain attractive, and it is finally exiting the extreme disinflationary period it has been experiencing. We are excited about Japan and are actively overweight to the region, so it is reassuring to see JPM’s thinking align with our own.

At the other end of the spectrum is US large cap. JPM have it at the bottom of their equity allocations with an expected return just shy of 6% per annum. This makes sense given the lofty valuations that the US is on, and the high earnings expectations it faces. As a market, its valuation is trading at a 34% premium to its long-term average, let alone the rest of the world. The US is also expected to grow their earnings per share by about 14% in 2025, which sounds fantastic, but it sets a very high bar for companies to achieve and increases the risk of earnings downgrades.

Source: JP Morgan Guide to the Markets, January 2025

The US is still our largest allocation by region as earnings have been resilient and, frankly, betting against the US market is brave when it is such a source of innovation. JP Morgan’s forecast also has a much longer time horizon than our portfolios (15 years v 5 years). In this shorter period, we think a Trump-led US has the adrenaline to continue to outperform, hence our current overweight. That being said, we will look to reduce our allocation as concerns surrounding concentration and valuations develop.

The chart below is from one of our macroeconomic data providers, Capital Economics. They too produce expected returns, and this chart compares projections to historic returns. The first thing you’ll notice is the US’ dominance over the past decade at almost 16% per annum versus Capital Economics’ forecast for the next 9 years. They believe that the US will continue to enjoy earnings growth but that a pullback in valuations will limit their returns. Meanwhile, their big bet is that the Middle East, Africa and Latin America will have their turn in the spotlight. In our Core portfolios we hold Redwheel’s Next Generation Emerging Markets fund that gives us exposure to many of these regions. It is a very small position for now as increases portfolio volatility and we think we have more time before these frontier markets start to boom.

Source: Capital Economics Long Run Returns Monitor, December 2024

Looking at other data providers or asset managers’ expected returns for different regions can be validating, but it is important to remember the time horizons. Investors do not want to have to wait 15 years for their investment to turn good. We use this data along with other analysis to build diversified portfolios that we believe offer the best risk-adjusted returns. It can also be useful to trigger new research i.e. why are expected returns for the US lower or what are the growth drivers in Latin America.

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.

Sources:

¹JP Morgan Guide to the Markets, January 2025.

²Capital Economics Long Run Returns Monitor, December 2024