EXECUTIVE SUMMARY
The reality is likely to emerge somewhere between these two extremes: A persistent inflation scare is possible, but equally, productivity is trending positively. Either way, investors should avoid the tendency to focus exclusively on a negative outcome. They should concentrate instead on building portfolios that capture today’s above-trend growth and are nimble enough to adapt as the
environment evolves. Above all, investors will want to avoid assets that are serial losers across multiple potential future states of the world, and strengthen exposure to assets that are serial winners – even if this means exploring new markets and carving returns out of a wider range of risk premia (EXHIBITS 12A and 12B).
Stock-bond frontiers are similar to last year, bond returns a little better and equity little changed. Alternative assets still sit well above the stock-bond line, as they monetize risk premia such as illiquidity risk rather than market risk alone EXHIBIT 12A: USD STOCK-BOND FRONTIERS 2022 stock-bond frontier
EXHIBIT 12B: EUR STOCK-BOND FRONTIERS
60/40 portfolio (2022)
2021 stock-bond frontier
60/40 portfolio (2021)
9%
2008 stock-bond frontier
60/40 portfolio (2008)
9% Private equity
8%
8%
7%
7%
EM equity
Private equity
6%
U.S. core RE EM debt (HC)
5%
U.S. Agg bonds
4%
U.S. large cap U.S. HY Div. hedge funds
3% 2% 1%
AC World equity
U.S. intermediate Treasuries
5%
3%
6%
9% 12% Volatility
15%
Source: J.P. Morgan Asset Management; data as of September 30, 2021.
LO N G - T ER M C A P IT A L M ARK ET AS S UM PTIO NS
European core RE
4%
18%
21%
AC World equity
Div hedge funds (hed)
3%
0% 0%
Euro area large cap EM debt (HC, hed)
World gov’t bonds (hed)
U.S. large cap (hed) U.S. HY (hed) Euro gov’t bonds Euro gov’t IL Bonds
1%
0%
16
6%
2%
World gov’t bonds (hed) U.S. cash
Compound return (%)
Compound return (%)
EAFE equity
Euro cash
0%
3%
Euro Agg bonds
6%
9% 12% Volatility
15%
18%
21%
