In the next five years the global economy will likely experience more uncertain, volatile, and divergent growth and inflation than in the New Normal decade leading up to the pandemic.
Three broad trends should drive major secular transformations: the transition to green energy, the faster adoption of new technologies, and an increasing tendency to share gains more widely. Returns across asset classes will likely be lower and more volatile over the secular horizon given starting valuations today and the outlook for disruption, division, and divergence. But active investors capable of navigating change should find good alpha opportunities.
Although we see upside risks to interest rates over the short term as economies continue to recover, over the secular horizon we expect rates to remain relatively range-bound, enabling lower but positive returns for core bond allocations. We remain generally constructive on equities, but we expect to see substantial differentiation across regions and sectors. In addition, we expect to see attractive return potential in private credit and real estate as a result of the COVID-19 crisis, and we will look to pursue these opportunities.
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