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Forecasting returns on assets in an environment of uncertainty Back to search results
Company: Amundi Asset management
Published: 11 February 2013
Business Area: Europe
Format: Portable Document Format (.pdf)
The definition of strategic expected returns on assets - i.e. over at least a 10-year period consistent with the duration of pension funds' liabilities and independent of tactical views expressed over a horizon of a few months - is particularly important for institutional investors. It helps them assess the risk/return trade-off between asset classes, and therefore build a strategic asset allocation. Investors can also use these as a basis for the calculation of their portfolio's expected return, which will then serve as a reference point for discounting their liabilities.
Unfortunately, while volatility is somewhat predictable, returns are un-correlated over time and are probably unobservable. This is particularly the case today as the crisis we have been facing since 2008 reminds us that returns dynamics are not stationary over time and that returns can deviate strongly and for a prolonged period from their long-term average.