Investors have enjoyed above average returns for decades now. But long-term evidence suggests that those lofty returns won’t last forever. In this episode we take a deep dive into the topic of expected returns with AQR’s Antti Ilmanen. Antti is the author of Expected Returns: An Investor’s Guide to Harvesting Market Rewards, which many consider to be the seminal work on the topic and has recently released a new book Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least.
We discuss the concept of expected returns and dig into the details of how they are calculated. We then use that framework to understand why future expected returns are likely lower than what investors have become accustomed to in recent decades. We also cover some additional sources of return that might offer investors an opportunity to boost returns in a low expected return world.