Portfolio Playbook
Get timely investment ideas, an overview of what’s happening in the markets, and tips to help optimize your portfolios in our monthly playbook.
Optimize your portfolios Capital Market Assumptions
Our long-term outlook utilizes a building block approach to estimate asset class returns, risk, and correlations relative to history to aid in allocation decisions.
Latest outlook Geopolitical and AI-based risks weigh on sentiment; we see equity valuations pressured favoring fixed income.
Global financial markets have experienced a broad decline driven by rising geopolitical tensions involving Iran. These tensions have pushed energy prices higher, influencing inflation expectations and potentially altering the anticipated path for interest rates, all of which would weigh on the consumer outlook.
Before events in the Middle East, markets were focused on the AI narrative, uncertain about the diffusion of AI across industries and the scale of investment required. Against this backdrop, our CMAs (Capital Market Assumptions) see equity valuations as elevated and expect them to moderate. Risk favors fixed income over equities as the return differential is relatively low compared to history.
We have revised our methodology for calculating CMA equity returns. The revised framework adds buybacks across regions and earnings growth is modified to include profit margins. Valuations now use the CAPE ratio and inflation data is sourced from the IMF. Finally, earnings are calculated using GDP-weighted geographic revenue measures.
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Alternatives Playbook
Our outlook, asset class views, and allocation guidance for investing in private markets and liquid alternatives. We’re uniquely positioned to provide this guidance because of our breadth across public and private markets. -
Tactical Asset Allocation
The coordinated US-Israel strike on Iran injected new uncertainty in financial markets, but we believe it's unlikely to derail economic fundamentals.
Relative tactical asset allocation (TAA) positioning and CMA scoring (Q1 2026)
We measure the portfolio risk for the tactical asset allocation positioning and CMA scoring across asset levels and opine on where it makes more sense to source the risk along the spectrum. Shown is the relative tactical asset allocation positioning related to risk divided into three categories: underweight, neutral and overweight across various asset classes.
- The top ledger shows the spectrum range beginning on the left-hand side is maximum overweight, middle is neutral, and the far right-hand side is maximum underweight
- First line: CMA scoring is nearing maximum fixed income overweight, TAA positioning is maximum equity overweight
- Second line: TAA positioning is neutral between US and DM ex-US equities, CMA scoring is a maximum overweight to DM ex-US equities
- Third line: CMA positioning is approaching a moderate overweight to DM equities, TAA positioning is neutral between DM and EM equities
- Fourth line: CMA positioning is nearing a moderate overweight to large-cap equites, TAA has a moderate overweight position in small-cap equities
- Fifth line: CMA is moderately overweight government, TAA is moderately overweight credit
- Sixth line: CMA positioning is a moderate overweight in quality credit, TAA is moderately overweight risky credit
- Seventh line: TAA is maximum overweight short duration, CMA is moderately overweight long duration
- Eighth line: CMA scoring is maximum below average portfolio risk and TAA is scoring maximum portfolio risk above average
Fixed income commentary
Expected returns for fixed income this quarter are mixed. Global aggregate bonds are expected to return 4.8% over the 10-year horizon, this is 0.2% higher than the previous quarter but 1.0% below estimated 12 months prior. In the high yield market softer yields have trimmed expected returns to 5.7% this quarter, down 0.4% and 1.1% lower than a year ago. Conversely broadly syndicated loans have benefited from improved yield expectations lifting their projected returns to 6.5%, a 0.5% increase from the previous quarter though flat on last year.
Equities commentary
The overall outlook for global equities is moderated by the influence of US large-cap stocks, which are expected to return 5.0%. Consequently, the aggregate global equity return is anticipated to be around 6.0% with major equity markets outside of the US expected to outperform, returning 8.0%.
As we've revised our methodology this quarter, historical comparisons across time periods cannot be reliably made. However, the updated approach is consistent across regions, allowing for meaningful regional comparisons. Across the regions, valuations are a core input to overall returns and are currently a negative factor. This indicates valuations are expected to moderate through the forecasted horizon with US large cap expected to see the largest change (-4.5%).
Emerging market earnings are relatively strong (6.2%) supporting an overall expected return of 7.9%. This is also seen with UK equities, which derive a large portion of their revenues from abroad, giving an expected overall return of 9.1%. Currency adjustments can also have a significant bearing on investors’ outcomes; USD investors in Japanese equities are forecasted to benefit from a 2.1% currency tail wind giving an anticipated return of 7.8%.
Alternatives commentary
Global REITS, hedge funds, and commodities continue to contribute meaningfully to diversification offering a range of risk return profiles. The use of alternatives allows for a more efficient use of a portfolio’s risk budget, specifically hedge funds having a return-to-risk ratio of almost four times that of US equities. Whilst these asset classes can also potentially offer a steady income stream they present relative opportunities from both capital appreciation and valuation standpoints right now.
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