Robeco publishes Expected Returns 2019-2023: ‘Patience is a virtue’

Rotterdam, 25 September 2018 – Robeco has published its annual Expected Returns report (2019-2023), a look at what investors can expect over the next five years. Robeco’s Investment Solutions department sees that the global economic cycle is enjoying a prolonged mature phase, however as central banks continue their shift away from quantitative easing to tighter monetary policy, this expansion will slow. With valuations for every major asset class looking stretched, a transition to the next phase could easily send markets into a tailspin. It seems inevitable that a recession will happen at some point.

There is certainly no reason to panic right now, according to the team, as the global economy is currently still in relatively good shape, and growth remains solid. The US is still going strong, and the Federal Reserve’s tighter policy has not put a spanner in the works. Meanwhile, China has done well to manage down unsustainable debt-fueled growth to more sensible levels and the Eurozone has continued to grow, while emerging economies are expected to outperform developed economies.

The team expects equities to be the best-performing asset class over the next five years, with emerging market stocks returning 4.5% a year and developed markets 4% for euro investors. German government bonds will deliver negative returns of -1.25% a year, while developed global government bonds should return -0.25%. Emerging market debt in local currencies is seen returning 3.75% a year, while investment grade corporate bonds should deliver 1% and high yield (non-investment grade) credits, 1.5%.


* Returns are denominated in euros. Bond and cash returns are euro hedged, except for local currency emerging market debt. The value of your investments may fluctuate and past performance is no guarantee of future results. Source: Robeco

On a five-year horizon, the US is likely to experience a recession at some point – if only on the basis of Minsky’s maxim that ‘stability breeds instability’. It could take place after the presidential elections in November 2020. The US authorities will probably let the economy grow above its potential in the run-up to the elections, by implementing a procyclical policy mix that will ultimately prove unsustainable due to rising inflationary pressures and public debt levels. Trade tensions are likely to be kept in check as a serious escalation would be counterproductive.

Bart Oldenkamp, head of Robeco’s Investment Solutions department: “It is clear that the investment environment could change dramatically in the next five years and that current conditions are already quite challenging with compressed spreads, widespread overvaluation in the major asset classes and low volatility. For long-term investors, it makes sense to start anticipating these changes. Opting for a more defensive portfolio is often the default solution, but in the current economic climate there are risks associated with doing too much, too soon. Therefore investors should not forget that patience is a virtue in the world of investing too, as we believe that there are still opportunities to harvest risk premiums in the major asset classes.

In addition to the five-year outlook, the Expected Returns publication also covers five special topics, broadly related to the theme: ‘Patience is a virtue’.

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