Over the next 10 to 15 years, JP Morgan Asset Management predicts that publicly traded stocks will return 4% to 5% and that the US aggregate will return around 2%, Pulkit Sharma, chief strategy and chief executive officer, told PLANSPONSOR. the company’s alternative portfolio solutions.
“For a portfolio with a 60/40 split [60% to global equities and 40% to U.S. fixed income], the highest projected valuation returns are 4.2% per annum, ”said Sharma. “In this construction, real estate fits perfectly into the portfolio. US core real estate is expected to return 5.9% over the next 10 to 15 years. That’s a premium of around 2 percentage points over US equities, a 4 percentage point premium over the US aggregate, and a 1 percentage point premium over high yield. In addition, real estate can increase with inflation. All of these reasons make it a powerful addition to a multi-asset portfolio. “
In fact, JP Morgan recommends that retirement portfolios have 10% exposure to real estate and claims that this exposure will increase the closing balance of a retirement portfolio by 10%.
Jani Venter, Director of the Defined Contribution (DC) Fund Management Team at JP Morgan Asset Management, adds: “Real estate is also a cyclical asset class, and we are in a trough right now. We expect it to rebound and continue to grow over the next 10 to 15 years. “
Venter also points out that just as Defined Benefit (DB) plans have embraced real estate, it makes sense for DC plan sponsors. include real estate in professionally managed multi-asset funds, such as target date or white label funds. In fact, says Venter, “a trend we’ve seen over the past two or three years is that investors are increasing their exposure to real estate. They also include real estate in the pre and post retirement income solutions.
“In the pursuit of retirement income, especially with such low yields and even negative government bond yields, many investors look to real estate to generate that income,” Sharma continues. “Real estate can play a role in both the early stages of a maturing fund [TDF]and the final stages of its downward trajectory as a fixed income substitute.
In “Long-term capital market assumptions“Says JP Morgan,” The long-term outlook for real assets is attractive, especially when viewed on a risk-adjusted basis, compared to most traditional assets and financial alternatives. We expect core real assets to continue to gain traction in portfolios given the stable and diversified nature of their return streams, driven by income generated by long-term contractual cash flows backed by strong counterparties. . “