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Asset Class Risk-Return Maps: 2017 Review & 2018 Outlook

Summary

Investors were amply rewarded for risk-taking in 2017, with recovering growth, supportive liquidity, prospective tax cuts and lower interest rates all supporting higher valuations.

These fundamentals, combined with a significant decline in market volatility led to a strong year for markets with equity markets at record highs.

Portfolio positioning for asset allocation remains key and we refresh the risk-return characteristics of each asset class for GBP investors.

For historic and expected asset class risk-return perspectives, see below.

Fig. 1: 1-year historic asset class risk-return for GBP investors

CAPM1Y Source: Elston research, Bloomberg data

Fig. 2: 3-year historic asset class risk-return for GBP investors

CAPM3Y Source: Elston research, Bloomberg data

Fig. 3: 5-year expected asset class risk-return for GBP investors

BII Estimates Source: Blackrock Investment Institute, total returns basis (arithmetic) for GBP investors

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: This article has been written for a US and UK audience. Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers. For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product. This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates. For information and disclaimers, please see www.elstonconsulting.co.uk

Photo credit: N/A; Chart credit: Elston Consulting (Fig 1 &2), Blackrock (Fig 3); Table credit: Elston Consulting

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Chart data is as at 30-Dec-17