Morningstar Survey Results for Long-Term Stock and Bond Returns

A recent Morningstar article outlined the intermediate-term (10-year) market return assumptions of a group of industry leaders that responded to a recent survey: John Bogle, founder of Vanguard: 4% stock return, 3% bond return over the next 10 years. Bogle asserts that “future returns from the major asset classes will be muted. GMO: -4.4% returns for U.S. large caps over next seven years; 2% real returns for emerging market equities. The firm, the article points… Read More

GMO: Don’t Blame Pricey Market Solely on Tech

A paper published last month by GMO argues that the market’s current elevated valuations should not be blamed solely on the technology sector. Still, it says the market is expensive “no matter how you cut it.” Here are some highlights; The paper provides data showing how the shift to “higher-multiple sectors” only accounts for a portion of today’s pricier market (P/E 10 is also known as the Shiller PE or cyclically adjusted price-earnings-ratio): GMO suggests… Read More

GMO Paper Says Indexing the S&P 500 is Risky

A comprehensive  white paper published by GMO’s Matt Kadnar and James Montier in August—arguing against a predominantly index-focused investment strategy–was condensed in a recent MarketWatch article. The article quotes the authors: “A decision to allocate to a passive S&P 500 index is to say that you are ignoring what we believe is the most important determinant of long-term returns: valuation. At this point, you are no longer entitled to refer to yourself as an investor.… Read More

Natural Resource Stocks that Show Promise

The short-term volatility in natural resource stocks can leave investors skittish, especially given their movement with either commodity or equity markets. But Jeremy Grantham and Lucas White of global investment management firm GMO published a white paper that offers some arguments in favor of including this asset class in a balanced portfolio: Growing demand and finite supply of natural resources; Diversification they can provide, as evidenced by low correlations with broader markets over long periods;… Read More

GMO: Don’t Bail on Hedge Funds

The fall in rates since the financial crisis has benefited stocks and other long-duration assets while hurting short-duration assets such as hedge funds, says GMO’s Ben Inker. “The characteristics that made hedge funds disappoint,” he says, “may well prove a blessing if discount rates start to rise.” Inker argues that today’s high returns and advanced U.S. equity valuations are not sustainable because they “represent an increase in the present value of an asset without any… Read More

Curb Your Enthusiasm

Richard Turnill, BlackRock’s chief global investment strategist, advises investors to “curb their enthusiasm.”  Turnhill commented in BlackRock’s most recent weekly market commentary: “We see a global portfolio made up of 60% equities and 40% fixed income producing annual returns of just 3.3% in U.S. dollars before inflation over the next five years.” Turnhill speaks well of foreign stocks, emerging market stocks, and private equity, saying “our international equity return estimates are now above the long-term… Read More

Is Long-Term Forecasting Valuable?

A Financial Times article highlights and challenges the common practice of long-term forecasting. Opening with a George Eliot quote – “Among all forms of mistake, prophesy is the most gratuitous” – the piece makes no bones about challenging the value of long-term forecasts. It argues: “Either they are so short term they are often liable to be as wrong as any other prediction; or they are so long-run that they are practically useless and only… Read More

GMO: Death of Equities “Greatly Exaggerated”

Bill Gross’ claim that the cult of equities is “dead” has generated a lot of response recently, and now Jeremy Grantham’s GMO has entered the fray, countering many of Gross’ key points. “Disappointing returns from equity markets over a period of time should not be viewed as a signal of the ‘death of equities,’” Ben Inker writes in a white paper on GMO’s web site. “Such losses are necessary for overpriced equity markets to revert… Read More

GMO High on Quality & Value, Sour on Bonds

Jeremy Grantham’s GMO has published its fourth-quarter update, offering a contrarian position on Europe and outlining its strategies as we head into 2012. The firm says it moved “incrementally into Europe” in the fourth quarter of 2011, adding. “Selectively, slowly, prudently, of course, but the general belief is that markets have overreacted, and this always presents some opportunities.” GMO says the move was “by no means a ‘call’ on the bottom of possible European corrections… Read More

GMO: International Equities Promising, Govt. Bonds Dangerous

Jeremy Grantham’s GMO has released its first-quarter 2009 update, and the firm says it will continue to put money back into equities, though with a cautious approach. “Having increased our exposure to equities last quarter, we kept to our game plan and gingerly shifted our stance toward favoring riskier asset classes,” GMO states. “Our concern about the broader economic picture, however, prevented us from deploying toward more speculative areas of the market, and we did… Read More