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White Papers

Capital Market Assumptions: Methodology Update

The Invesco Global Solutions team's Capital Market Assumptions (CMAs) are integral to the construction of our multi-asset portfolios. The CMAs estimate asset class returns using a “building block methodology.” We analyze the underlying drivers of asset class returns for equities, fixed income, commodities and alternatives over 10-year and five-year time horizons. Each asset class requires its own unique approach to estimating returns. Forecasts for equities reflect a total return approach, incorporating both income and capital appreciation. The building blocks for fixed income returns include yield (as a potential driver of income), and roll return, valuation change and credit loss (as potential drivers of capital appreciation). For commodities, we evaluate collateral return as a potential driver of income, and roll and spot returns as potential drivers of appreciation. Alternatives are a new addition to our CMAs, and estimating their returns requires a different approach depending on the strategy.

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