Australian Shares, Bonds, International Shares

Active portfolios primed for growth

JP Morgan shares bonds long term capital markets

Investment portfolios with a 60/40 share and bonds mix are primed to do well, but will need to take active positions to maintain long-term growth.

Investors who settle for long-term active investments outside of cash are likely to double their money in 10 years using a standard 60/40 portfolio and may be able to gain further returns via an allocation to alternative assets, according to a global funds management firm.

JP Morgan Asset Management global market strategist Kerry Craig revealed the firm’s “2024 Long-Term Capital Market Assumptions” report, which provides a 10 to 15-year outlook for risks and returns across 200 asset classes, forecast the annual return for a US dollar 60/40 stock-bond portfolio over that period would be 7 per cent.

“What that return looks like in the coming decade is about 7 per cent on an annualised basis, and that’s a US dollar figure, but you would double your money, so it’s a very strong starting point,” Craig told a media briefing in Sydney yesterday.

“When we translate that into Australian dollars, it is slightly lower because we have a currency effect so it’s 5.8 per cent.

“We still think it’s a quite an optimistic story for investors who are looking to build their wealth over a longer period.”

He pointed out the report found a need to move out of cash and that $100 invested in cash would return $104 in 10 years compared to $154 invested in a simple 60/40 portfolio and $163 invested in a 60/40 portfolio with a 25 per cent exposure to alternative assets.

“Our expectations of cash rates is they will return to something that’s more normal from the very high levels today, impacting the thinking that comes with the high level of cash rates, which may be keeping investors from thinking about the short and long term when they consider how to build their wealth,” he said.

He said any move out of cash investments should be accompanied by considerations of what other asset classes in a portfolio can still provide protection against risks in a growing market.

“That does mean thinking about other parts of the fixed income market, but also thinking about how to use private market assets to achieve better enhanced returns, as well as increased diversification within that portfolio,” he said.

“When we think about enhancing those returns, 7 per cent on a US dollar 60/40 portfolio should be viewed as the starting point because we can always build on those returns.

“One of the ways do to that is through becoming more active with allocations, whether it’s across asset classes, within asset classes, across public and private markets, and manager selection being more active is going to be crucial to thinking about how we can beat that 7 per cent return on a simple 60/40 model.”


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