Overview
PGIM Quantitative Solutions’ Capital Market Assumptions (CMAs) underpin the long-run outlook for strategic allocations in our individual strategies and multi-asset portfolios. They are the product of a highly systematic process for generating consistent projections across the capital markets.
CMAs provide 10-year expectations for the most widely held equity, fixed income, and non-traditional asset classes, measuring both return and risk. We update our CMAs each quarter. Our investment professionals begin with evolving asset-class fundamentals and macroeconomic assumptions at the country level. For each asset class, we decompose local return expectations into three broad categories: income, growth, and valuation adjustment. We also forecast relative currency adjustments for investors in different domiciles to allow for conversion to hedged or unhedged returns. Our core building blocks and final forecasts are reviewed at their component levels by an investment council of our most senior investment professionals.
Capital Market Assumptions Framework
Shown for illustrative purposes only. Source: PGIM Quantitative Solutions.
PGIM Quant's long-term return and volatility forecasts are based on building blocks with inherent uncertainty as to the economic environment that will prevail over the next 10 years. Our forward-looking views for economic growth and inflation in 16 countries are some of the most critical building blocks of our CMAs.
Based on our forecasts, we expect real economic growth in developed economies to continue to moderate over the next decade, as it has for the last 30 years, due to the limited growth of the developed labor force. Inflation in Developed Markets is also anticipated to moderate relative to the elevated rates seen in 2021 and 2022. We expect long-run real economic growth and inflation in Emerging Markets to advance at higher annualized rates than in Developed Markets given younger populations and higher rates of return on capital that are driving higher rates of nominal economic output.
10-Year Forecast Returns and Volatility
Source: PGIM Quantitative Solutions as of Jun 30, 2024. Forecasts may not be achieved and are not a guarantee or reliable indicator of future results.
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