Global Market Index's Long-Term Expected Total Return Rises to 7.2% Annually.

The long-run expected total return for the Global Market Index (GMI) increased to 7.2% in May from 7.0% in the previous month. This estimate is slightly below GMI's realized returns, and the long-term expected total return for the US stock market was estimated at 5.3%, while the US bond market was estimated at 3.3%.

The long-run expected total return for the Global Market Index (GMI) increased to 7.2% in May from 7.0% in the previous month, according to the latest analysis [1]. This estimate, which is slightly below GMI's realized returns, reflects a solid performance but indicates a modest upward trend in market expectations. The GMI, an unmanaged global benchmark, is based on a market-value weighted mix of major asset classes excluding cash.

The outlook for US stocks remains relatively low, with an estimated long-term total return of 5.3%, compared to the US bond market, which is forecasted at 3.3%. This suggests that investors might find a globally diversified portfolio more attractive compared to the past decade, given the relatively higher expected returns from non-US markets and the relatively lower returns from US equities.

The GMI serves as a theoretical benchmark for the "optimal" portfolio, useful for customizing asset allocation and portfolio design to match an investor's expectations, objectives, and risk tolerance. Its performance has historically been competitive with most active asset-allocation strategies, especially after adjusting for risk, trading costs, and taxes.

The forecasts for the GMI are generated using three models: the Building Block (BB) model, the Equilibrium (EQ) model, and the Adjusted Equilibrium (ADJ) model. The BB model uses historical returns, the EQ model relies on risk metrics, and the ADJ model adjusts forecasts based on short-term momentum and longer-term mean reversion factors. The forecasts are then averaged to generate the overall GMI estimate.

Investors should consider these projections as a baseline for refining their expectations and customizing portfolios to reflect their risk tolerance and time horizon. The GMI's track record suggests that while some forecasts may be wide of the mark, the overall estimate is expected to be more reliable than the estimates for specific markets.

For the most recent performance, GMI's current return for the past ten years stands at 7.5%, a solid performance compared to the US stock market's 10-year return of 12.4% and the US bond market's 10-year return of 5.2%.

References:
[1] https://uk.investing.com/analysis/global-market-index-outpaces-active-strategies-over-10-years--and-may-keep-going-200617018