Search
Get in touch!
Linkedin X-twitter Envelope

Cliff Asness: Get Your Expectations in Line With Reality

In this article, AQR assess the assumption built into today’s market and what that likely will mean for forward returns. These insights aim to guide investors in setting realistic medium-term (5-10 years) expectations while emphasizing the importance of valuation discipline and diversification in navigating compressed risk premia across asset classes.

Here are the key take-aways:

  • Medium-Term Expected Returns: A global 60/40 portfolio (60% equities, 40% bonds) is projected to deliver a real return of 3.5%, an improvement from the 2021 low of 2% but still below the long-term U.S. average of nearly 5%. Equity returns remain compressed due to high valuations, with U.S. equities expected to underperform other developed markets due to richer valuations and lower risk premia.
  • Government Bonds and Credit Markets: Bond yields have risen significantly since their historic lows in 2021, offering positive real returns across most major markets. U.S. 10-year Treasuries are expected to deliver a 2.5% real return. Credit markets, including investment-grade and high-yield bonds, show improved expected returns due to higher Treasury yields and better rolldown effects, with U.S. corporate high-yield bonds projected at a real return of 3.5%.
  • Growth Expectations and Equity Valuations: U.S. corporate earnings growth has been robust historically but is projected to moderate to around 2% annually over the long term. Current U.S. equity valuations imply overly optimistic growth expectations, with the market pricing in growth rates significantly higher than AQR’s assumptions.
  • Diversification and Tactical Adjustments: Broad diversification across asset classes and regions remains critical for long-term portfolio resilience. While some tactical opportunities (e.g., equity value style) have normalized, maintaining exposure to diversified factors is recommended given the uncertainty in market conditions.

The long-term benefits of a diversified portfolio do not accrue steadily, but rather come in waves. Unfortunately, many investors give up on diversification – across regions and asset classes – just as the next wave is about to break.

Click here to go to the external source.

Share the news

Disclaimer of liability

The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

Readers are advised that investing may involve a risk of loss that cannot be determined in advance, and that past performance and price development cannot be used as a reliable indicator of future performance and price development. For further information please contact info@borsgade.dk

You might also find this interesting:

Thomas Shrager: Superior Value Outside the U.S

July 3, 2025

In a comprehensive interview, Thomas Shrager and Jay Hill from the renowned New York value investing boutique Tweedy, Browne articulate their belief that the most compelling investment opportunities currently lie outside the United States. The veteran fund managers, who oversee portfolios for the 104-year-old firm, explain that international markets offer dramatically better value propositions than the overvalued U.S. equity market, which they describe as “priced for perfection” at 24 times earnings.

Aswath Damodaran: The Uncertain Payoff from Alternative Investments

June 18, 2025

Professor Aswath Damodaran’s latest analysis challenges the conventional wisdom surrounding alternative investments, revealing significant gaps between marketing promises and actual performance. Aswath examines how institutional and individual investors have increasingly embraced alternatives like hedge funds, private equity, and venture capital, often with disappointing results despite decades of compelling sales pitches.

Alternative investments have gained mainstream acceptance over the past two decades, moving beyond their traditional institutional confines to target individual investors. The core argument for these investments rests on two pillars: their supposedly low correlation with traditional stocks and bonds, and their potential to generate excess returns through superior management and market inefficiencies. However, Damodaran’s analysis suggests these benefits may be largely illusory when subjected to rigorous scrutiny.

Michael Mauboussin: How to Handle Intangibles in Modern Value Investing

June 18, 2025

Michael Mauboussin, Head of Consilient Research at Morgan Stanley, delivered a compelling keynote presentation at the Ben Graham Centre for Value Investing’s 2025 conference, addressing how the rise of intangible assets has fundamentally altered the landscape of value investing.

Drawing from nearly a century of investment wisdom while adapting to modern realities, Mauboussin argues that traditional accounting methods have become increasingly inadequate for evaluating companies in today’s intangible-heavy economy. His presentation reveals that intangible investments now represent 1.7 times tangible investments in the U.S. economy, a complete reversal from 1977 when tangible investments dominated by a factor of 1.4.

Cliff Asness: Missing the Best Days Isn’t the Real Problem

June 12, 2025

Clifford Asness of AQR Capital Management revisits his 1999 rejected paper that challenged one of the most common arguments against market timing. The widespread belief that missing just a few of the market’s best days destroys long-term returns is fundamentally flawed, according to Asness.

His analysis shows that while missing the best performing days does hurt returns, missing the worst performing days provides symmetrical benefits. The author demonstrates through both historical data and simulations that this “evidence” against market timing is mathematically obvious and essentially useless for investment decision-making.

Asness argues that legitimate criticisms of market timing should focus on investors’ lack of skill rather than cherry-picked scenarios of perfect incompetence. His 25+ years of out-of-sample data confirms these findings, showing the argument remains as flawed today as it was when first proposed.