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 Navigating policy uncertainty through diversification and opportunities beyond US equities
Market conditions remain shaped by geopolitical tensions, evolving inflation expectations and uncertainty around the Fed’s policy path. As a result, monetary policy expectations remain in flux, while the equity rally has broadened beyond large-cap technology stocks.
Equity performance has become increasingly differentiated across regions. US equities have remained resilient, supported by technology earnings and continued enthusiasm around AI. However, attractive opportunities remain outside the US. Japanese equities have benefited from corporate reforms, improving investor demand and strong earnings prospects, while several developed markets continue to offer a compelling combination of earnings growth, shareholder yield and valuations.
Although inflation concerns have eased from recent peaks, expectations for higher policy rates persist. Elevated yields have improved prospective income across bond markets, reinforcing the role of fixed income as a diversifying allocation within long-term portfolios.
More from Invesco Optimize your investment process and outcomes with expert guidance and innovative analytics from Invesco.
-
-
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
In August, we continue to overweight stocks relative to bonds and favor diversification, US and defensive stocks, and duration.
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 have increased this quarter as higher yields, driven by firmer inflation concerns and geopolitical pressure on energy prices, improved the return outlook across the asset class. Global aggregate returns are estimated at 5.0%, narrowing the gap with global equities. The increase in fixed income returns reflects a stronger contribution from yield, while the currency adjustment, although flat qoq, contributed 0.6% to estimated total return. The projected return for US aggregate is 0.2% higher qoq as current yields increased 0.3% qoq for the asset. The market repriced its expectations for Fed rate cuts lower by year-end as inflation concerns intensified through 1Q-2026, which drove the increase in yields. Return revisions have been most pronounced in higher-yielding segments, with global high yield driven primarily by a stronger contribution from total yield.
Equities commentary
Global equities are expected to return 5.9% over the next decade (-0.2% qoq), reflecting a greater valuation headwind as the US market’s share of global market capitalisation has increased, leaving global indices more exposed to potential derating. US equities are forecast to return 5.1%, unchanged from last quarter, with strong earnings growth offset by elevated valuations. Within the US, mid-caps stand out at 8.3%, supported by stronger earnings and more attractive valuations than large or small caps. We continue to favour developed markets outside the US, with UK and Japanese equities both expected to return 8.6%, supported by resilient earnings and relatively attractive valuations. Europe ex-UK is projected to return 7.1%. Emerging markets are also expected to return 7.1%, benefiting from improved valuations and currency dynamics, although we continue to see more compelling opportunities in developed markets ex-US.
Alternatives commentary
US REITs, hedge funds, and commodities continue to offer distinct return drivers, enhancing diversification. On a risk-adjusted basis, hedge funds stand out as an efficient allocation of risk-taking capital, with a return-to-risk ratio of 1.4. US REITs persist in demonstrating a relatively strong return-to-risk ratio of 0.5 in comparison to US large-cap equities (0.4), while also generating expected returns above their 10-year historical return. Our 10-year return estimates show a slight qoq improvement in expected returns for REITs and commodities, reflecting a somewhat more supportive outlook for real assets, while hedge funds are expected to moderate modestly after an exceptional performance in 2025.
NA5279015
Americas_United States_Invesco US