In its 2019 capital market assumptions release, J.P. Morgan Asset Management? estimates that investors can expect a 5.25% return from U.S. large-cap equities over the 10- to 15-year horizon, down from its 5.5% estimate in 2018. Large caps were the only asset class the investment manager revised lower from the year before. U.S. investment-grade corporate bonds saw the largest upward revision to 4.5% from 3.5%.
The decline in the large-cap return estimate falls below the asset class’s long-term average. Emerging market equity? return assumptions were revised upward by 50 basis points to 8.5%. Return assumption increases in U.S. fixed income are reflective of the overall upward trend in interest rates, what the report refers to as U.S. rate normalization.
J.P. Morgan notes that its estimates, of returns and corresponding volatility, produce higher Sharpe ratios for fixed-income assets, particularly U.S. investment-grade, while Sharpe ratios fell slightly for U.S. equity. The firm also sees improving Sharpe ratios for emerging market debt and global credit; however, those figures do not account for increased liquidity risk in times of market stress.