Northern
Trust (Nasdaq: NTRS) has published its annual
long-term forecast for economic activity and financial market
returns, emphasizing gradually improving global growth, interest rates
remaining below historical averages and uncertainty over central
bankers’ ability to create healthy, sustainable economies while gently
winding down quantitative easing programs. Northern Trust also notes the
potential for increased volatility in the financial markets.
“Higher volatility means that investors need to reaffirm their
commitment to how their portfolios are positioned so that they do not
shift out of their asset allocation for short-lived reasons,” Northern
Trust Chief Investment Strategist Jim McDonald said. "As developed
central banks try to manage investor expectations about the future of
monetary policy, we expect uncertainty to remain fairly high."
Looking ahead to what can be expected from main asset classes, Northern
Trust forecasts a five-year annualized total return of approximately
seven percent for developed stock markets, down slightly from last
year’s long-term forecast. Emerging stock markets are expected to
continue to command a risk premium given valuation differentials and
their growth profile.
Fixed income forecasts were revised slightly upwards from last year as
interest rates have risen and expectations of further increases look
elevated. Northern Trust believes that fixed income markets will
continue to be driven heavily by non-fundamental factors such as central
bank intervention, as opposed to the more typical drivers of growth and
inflation. During this period of uncertainty about monetary policy,
Northern Trust expects municipal bonds to remain inexpensive relative to
Treasuries as financial market liquidity remains scarce.
“The outlook for fixed income investing is not as dire as some people
think,” McDonald said. “We expect positive returns from fixed income
investments over the next five years and continue to believe bonds will
play a critical role in client portfolios.”
Key themes identified in Northern Trust’s 2013 Capital Markets Outlook
include:
-
Political Volatility, Policy Stability – A strong shift to the left or
right is not expected, since voter sentiment remains surprisingly
constant.
-
Asset Classes Without Borders – Asset allocation will become less
focused on particular countries, with global capital markets and
globally diverse companies furthering the case for a global approach
to asset allocation. Northern Trust is looking at how individual
assets can be combined to provide specific exposures to compensated
forms of risk.
-
Watchful View on Inflation – Inflation remains at subdued levels amid
tentative confidence and excess capacity, declining during the past
year. However, financial markets may be slightly underestimating
inflation risk going forward. The combination of low inflation
expectations and ultra-aggressive central banks continues to argue for
inflation protection within a diversified portfolio.
For more on how our latest five-year outlook yields new twists on
investor themes, please see Northern Trust’s more recent MarketScape
video, featuring Chief Investment Strategist Jim McDonald.
Each year, Northern Trust’s Capital Market Assumptions Working Group
develops a long-term forecast for economic activity and financial market
returns that is designed to be ''forward looking and historically
aware.'' The group also identifies specific risks that are combined with
other portfolio construction tools to annually review and update the
firm’s recommended strategic asset allocations.
The group is composed of senior investment professionals from across
Northern Trust globally, including the firm’s chief investment officer,
chief investment strategist and managing directors of specific asset
classes.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of
investment management, asset and fund administration, banking solutions
and fiduciary services for corporations, institutions and affluent
individuals worldwide. Northern Trust, a financial holding company based
in Chicago, has offices in 18 U.S. states and 16 international locations
in North America, Europe, the Middle East and the Asia-Pacific region.
As of June 30, 2013, Northern Trust had assets under custody of US$5.0
trillion, and assets under investment management of US$803.0 billion.
For more than 120 years, Northern Trust has earned distinction as an
industry leader in combining exceptional service and expertise with
innovative products and technology. For more information, visit www.northerntrust.com
or follow us on Twitter @NorthernTrust.
Copyright Business Wire 2013