Our 2021 Capital Market Assumptions

Our annual forecast, which is based on a 10-year investment time horizon, is intended to guide investors in developing their long-term strategic asset allocations.

Every year, BNY Mellon develops capital market return assumptions for approximately 50 asset classes around the world. The assumptions are based on a 10-year investment time horizon and are intended to guide investors in developing their long-term strategic asset allocations.

The results of our 2021 10-year capital market assumptions are mixed depending on the asset class when compared to last year’s assumptions. We see stronger equity market returns due to higher growth rates as the economy recovers from the pandemic. Fixed income asset class returns will be extremely limited given how low global bond yields are today. Alternative asset class returns are mixed, with generally lower returns in absolute return or hedged strategies and amplified returns in private markets.

Snapshot of Risk and Return for the 2021 Capital Market Return Assumptions

Our capital market assumptions have implications for portfolio construction, centered on the importance of diversification and a shift away from the traditional 60% S&P 500 / 40% Bloomberg Barclays U.S. Aggregate portfolio.

Importance of highly diversified equity portfolio

Though an equity portfolio focused on U.S. companies has experienced strong returns over the last 10 years, we believe a more diversified equity portfolio with additional emphasis on international markets will be beneficial.


Over the long term, our view is that international equities will outperform U.S. equities due to a weaker U.S. dollar and more attractive valuation levels. Diversification of style and capitalization is also important as a rotation from growth to value and large to small cap may occur as the recovery from the pandemic broadens.

Greater emphasis on non-traditional investments for risk mitigation

With fixed income returns likely to be challenged in the decade ahead given the historically low interest rate environment, we see many fixed income sectors returning near zero on a nominal basis and negative on a real basis. This calls into question the use of traditional fixed income as the risk anchor of a diversified portfolio.


Going forward, we see a greater emphasis on non-traditional investments for risk mitigation such as absolute return, real return and hedged strategies. These strategies have the potential to generate positive real returns, provide downside protection to traditional equities and diversify against fixed income interest rate risk.

Increased focus on private markets over the next 10 years

The incremental return offered through private markets will be key to boost portfolio returns and offset the impact of historically low rates. With the opportunity set continuously shifting from public to private equity, an allocation to private markets is evolving from an option to a necessity in order to achieve long-term growth objectives.

Our 2021 Capital Market Assumptions report outlines these findings in depth and provides supporting details behind the numbers. We hope you find it interesting and insightful.

To read our 2021 capital market assumptions, please download the PDF.

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