Total Return Forecasts: Major Asset Classes - July 2, 2025

The Global Market Index (GMI) long-run expected total return rose for the third consecutive month in June, reaching an annualized 7.3% from 7.2% previously. This upward trend for the GMI, which serves as a theoretical benchmark for optimal long-term portfolios, contrasts with US equities, which remain a downside outlier for expected returns despite their significant realized performance over the past decade.

Analysis

The long-run expected total return for the Global Market Index (GMI) has demonstrated a consistent upward trend, increasing for a third consecutive month in June to an annualized 7.3%, a slight uptick from the 7.2% forecast in May. This modest but steady improvement in the GMI, a theoretical benchmark for an optimal, globally diversified portfolio with an infinite time horizon, signals a marginally more favorable outlook for broad asset class returns. However, a key divergence is highlighted within this global forecast: US equities are singled out as a 'downside outlier' in terms of future expected returns. This is particularly notable when contrasted with the strong realized performance of US stocks over the past decade, suggesting that the drivers of past outperformance may not persist and that other global markets may offer more attractive forward-looking returns on a relative basis.

Key Decisions for Investors

• Investors with heavy concentrations in US equities should review their geographic allocations, as the lower forward-looking return forecast for this segment suggests value in diversifying into non-US markets.
• It is crucial to manage expectations for US equity returns, as the analysis indicates that the high realized performance of the past decade is not expected to continue at the same pace.
• Given that the GMI forecast is a long-run metric, these insights should inform strategic, long-term portfolio construction rather than short-term tactical trading decisions.
• Consider positions in global asset allocation funds that mirror the GMI's broad diversification to align portfolios with the modestly improving global return outlook.