2017 and beyond: a medium-term asset allocation outlook

09 Jun 2017

BNP Paribas Asset Management has a long history of providing asset allocation advice to institutional clients for whom we manage multi-asset portfolios. This has included studies for pension funds and insurance clients to optimise their long-term strategic asset allocation, but also portfolio allocations on the basis of medium-term expected returns to ensure an optimal positioning of asset classes in their portfolios, taking into consideration global and regional economic cycles. Clients have appreciated this highly and we believe that the work we do in this field is of interest for all institutional clients.

Institutional investors face great challenges after a long period of declining yields and very accommodative policies by the main global central banks. These include the continuous search for yield as the more traditional fixed-income asset classes are expected to generate low returns, the growing pressure of regulation that has an impact on the way portfolios are managed, especially when derivatives are involved, and the emergence of more sophisticated investment vehicles that can bring additional benefits from a risk perspective, but also need a more thorough understanding before implementation.

In this environment, we are assisting clients in designing robust portfolios that are aligned with their risk appetite and objectives. This requires a well-defined process in which an optimal combination of qualitative and quantitative inputs in the portfolio construction phase is essential. We at BNP Paribas Asset Management believe that we have all the ingredients in house to do so successfully.

In this publication, we describe in more detail our process to come to expected returns for a large number of asset classes. You will find that our expectations are moderate compared to the returns of the past and for many asset classes they are lower than their long-term averages. This illustrates the difficult environment investors face, but it also shows the need for a careful portfolio allocation and construction process in which diversification across assets and regions plays an important role and where choices need to be made for those assets that can bring real added value to the portfolio.

Before getting started, we discuss a number of thematic topics that are not directly connected to the expected returns for the medium term, but that we believe will influence portfolio construction for 2017 and beyond. We hope this publication will guide you in the process of defining and constructing the best possible portfolio and we would be delighted to discuss with you in more detail the implications of the assumptions for your asset allocation and the way we can structure the portfolio even better so that you can achieve your goals.


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