NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By John Authers

With the oil price again positive (never previously regarded as a great reason for celebration), and continuing signs that this wave of the coronavirus is coming under control in the U.S., we had a return to “risk-on” in markets Wednesday. But what exactly should investors be buying for the long term?

GMO LLC, the Boston-based fund manager established by Jeremy Grantham and others, regularly publishes seven-year forecasts for asset class returns that it uses to guide allocation. The latest version, published last week, startlingly predicts negative returns for cash and most bonds over the next seven years, and returns of less than 5% for all main classes of equity, with outright negative returns for U.S. large-caps. The only exception, for which GMO is expecting a return of more than 11%, is emerging market value stocks.  Unsurprisingly, the asset allocation team headed by Ben Inker say that “Now is the time” for us to act on our portfolios, and fill up on cheap EM equities. Are they right?

Photo courtesy of Lorenzo.