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    Long term capital-market_return_assumptions_-_2013_pdf Long term capital-market_return_assumptions_-_2013_pdf Presentation Transcript

    • J.P. Morgan Asset ManagementLong-term Capital Market Return Assumptions2013 EDITIONFOR INSTITUTIONAL AND PROFESSIONAL INVESTORS ONLY | NOT FOR RETAIL USE OR DISTRIBUTION
    • J.P. Morgan Asset Management Long-term Capital Market Return Assumptions As of September 30, 2012* Expected 10–15 year annualized compound returns (%)1,2 RationaleINDICATORS Inflation 2.50 Shorter term, high unemployment, ongoing deleveraging and firmly anchored market expectations will keep inflation low overall, while reflationary central bank policy and rising import prices create the risk for higher ECONOMIC 2.25 inflation over the medium to longer term. Growth in emerging economies will maintain pressure on commodity prices, causing headline inflation to marginally outstrip core. U.S. Core Inflation Real GDP 2.25 Government stimulus reduces loss of capacity, but a prolonged period of deleveraging and a slow labor force expansion are likely to constrain economic growth. U.S. Cash 1.75 Federal Reserve to keep policy rates on hold for an extended period and raise them only gradually thereafter. Real rates to remain close to zero, on average. U.S. Intermediate Treasury3 3.00 Yield levels to stay low in the near term and to rise subsequently toward their higher equilibrium levels as monetary policy is eventually normalized. Low total returns due to low income and negative mark-to-market U.S. Long Treasury4 2.00 returns from rising rates. U.S. TIPS 3.75 TIPS to outperform nominal Treasuries as expected inflation rises moderately from current levels. U.S. Aggregate 3.50 U.S. Short Duration Gov’t/Credit 2.00 FIXED INCOME2 U.S. Long Duration Gov’t/Credit 3.25 Spreads expected to narrow somewhat, but total returns to be constrained as overall yields rise with Treasury rates; intermediate maturity securities benefit most from the curve roll-down. U.S. Investment Grade Corporate 4.25 U.S. Long Corporate 4.25 U.S. High Yield 6.50 Limited mark-to-market losses from the rise in Treasury rates will be partially offset by further narrowing of spreads. Income expected to be the major driver of return. Haircut applied to total returns for expected loss U.S. Leveraged Loan 6.00 from defaults. World Government Bond (local) 2.50 Government bond yields to rise globally from current levels, leading to negative mark-to-market returns as rates converge to equilibrium. World ex-U.S. Government Bond (local) 2.25 World ex-U.S. Government Bond (hedged) 3.00 Higher U.S. cash yields compared to weighted average WGBI cash yields are expected to boost returns to U.S. investors. Emerging Markets Sovereign Debt (unhedged) 5.00 Spreads expected to narrow further, but total returns are constrained as overall yields rise with U.S. Treasury rates. Emerging Markets Local Currency 7.50 Yields expected to rise as inflation and real rates in emerging economies increase to their higher equilibrium levels over time. Total returns largely driven by income. Sovereign Debt (unhedged) Emerging Markets Corporate Debt (unhedged) 6.50 Spreads expected to narrow further, but total returns are constrained as overall yields rise with U.S. Treasury rates. U.S. Municipal 3.25 Municipals to outperform comparable taxable bonds as the yield ratio falls due to higher marginal tax rates, partially offsetting expected increase in Treasury yields. U.S. Large Cap 7.25 Sum of below building blocks (Nominal EPS growth + Dividend yield + P/E return impact). Total returns expected to recover over the long term as corporate sector outperforms domestic economy. U.S. Large Cap EPS Growth 4.50 Real corporate earnings growth expected to match real GDP growth as companies maintain cost discipline and revenues benefit from fast-growing overseas markets; margins to drift gradually lower. U.S. Large Cap Dividend Yield 2.75 Dividend yields expected to rise as companies favor payouts over new investment given higher uncertainty over economic outlook. U.S. Large Cap P/E Return Impact zero Valuation multiples to remain below long-term historical averages given persistent deleveraging pressures and higher expected inflation. U.S. Mid Cap 8.00 Premium to large cap assumed for both. Mid-cap companies in particular likely to benefit from acquisition activity by larger firms, especially given significant cash build-up on large-cap corporate balance sheets. U.S. Small Cap 7.75 U.S. Large Cap Value 7.00 EQUITY2 Growth expected to outperform value given more favorable sector concentrations and higher share of revenues sourced from overseas markets. U.S. Large Cap Growth 7.50 Earnings premium to nominal GDP expected due to large share of emerging market-sourced revenues. Valuations to improve from depressed levels as a resolution to the debt crisis is ultimately reached. Moderate rise in Europe ex-U.K. Large Cap (local) 7.75 dividend yields expected. Japan Large Cap (local) 5.00 Earnings to outperform domestic economy given exposure to fast-growing overseas markets. Japan to remain a global underperformer given demographic challenges and ongoing battle with deflation. U.K. Large Cap (local) 7.75 Earnings premium to nominal GDP expected given support from foreign-sourced revenues. Tolerance for higher inflation to keep valuations in check, but dividend yields expected to rise moderately. EAFE Equity (local) 7.25 Market capitalization-weighted average of expectations for regional equity returns. EAFE Equity (unhedged) 7.00 Slight dollar appreciation against weighted average of EAFE currencies expected to subdue returns to U.S. investors. Emerging Markets Equity (unhedged) 9.75 Healthy economic fundamentals, favorable demographics and policy flexibility to support long-run growth, while rising labor costs drag on earnings. Capital inflows expected to support equity returns. Asia ex-Japan Equity (unhedged) 9.50 Headwinds from higher imported commodity prices expected to be largely offset by stronger underlying economic growth than in other emerging regions. Global Equity (unhedged) 7.50 Market capitalization-weighted average of expectations for regional equity returns. U.S. Private Equity5,6 8.00 Median manager returns to produce a small premium to large cap and be in line with mid-cap equity. Sizeable divergence expected across private investments. U.S. Direct Real Estate (unlevered)5,6 6.50 Sustained appreciation of real estate assets, lower initial property yields and lower nominal GDP expectations reduce return expectation by 0.25% from 2012. ALTERNATIVE/OTHER2 U.S. Value Added Real Estate (unlevered)5,6 8.00 A real estate risk assumption between core and opportunistic, seeking to enhance cash flows, occupancy and building renovation; historically higher yield compared to core. European Direct Real Estate (unlevered, local)5,6 6.50 European real estate with low nominal GDP growth to produce muted return expectations. U.S. REITs 6.75 Strong REIT performance and slight NAV premium to direct unlevered real estate result in REIT return broadly in line with the real asset return. Global Infrastructure5,6 7.75 Return expectations driven by growing global interest in perceived safety of infrastructure cash flows and the benefit of leverage from low risk “bondable” assets. Expected hedge fund returns based on multi-variate regressions to public markets. Blend of emerging markets, commodities, small cap and U.S. aggregate bond betas the main driver of median manager expected return. Hedge Fund—Diversified5,6 6.00 Sizeable divergences expected among managers. Hedge Fund—Event Driven5,6 6.25 Blend of emerging markets, commodities, mid cap, small cap, U.S. high yield and cash betas the main driver of median manager expected return. Sizeable divergences expected among managers. Hedge Fund—Long Bias5,6 7.00 Blend of commodities, emerging markets equity, large and small cap betas the main driver of median manager expected return. Sizeable divergences expected among managers. Hedge Fund—Relative Value5,6 5.00 Blend of emerging markets credit, commodities, U.S. high yield and investment grade bond betas the main driver of median manager expected return. Sizeable divergences expected among managers. Hedge Fund—Macro5,6 6.25 Blend of commodities, emerging markets equity and cash betas the main driver of median manager expected return. Sizeable divergences expected among managers. Commodities (spot)5 5.75 Return expectation based upon the growth of nominal global GDP. Returns slightly less robust as large developing market commodity users increase efficiency, in line with historic evidence. Gold (spot) 6.25 Expected return based on historical relationship with inflation expectations, the U.S. dollar and emerging markets.* Data as of September 30, 2012, except hedge funds (diversified, event driven, long bias, and relative value) as of June 30, 2012 and hedge fund (macro) as of 5 P  rivate equity, hedge funds, real estate, infrastructure and commodities are unlike other asset categories shown above in that there is no underlyingMay 31, 2012. investible index. Hedge fund returns are shown net of manager fees.1 R  eturn estimates are on a compound or internal rate of return (IRR) basis. Equivalent arithmetic averages, as well as further information, are shown on the following page. 6 T  he return estimates shown for these asset classes and strategies are our estimates of industry medians—the dispersion of returns among managers2 All asset class assumptions are in total return terms, including equity return assumptions. All returns are in U.S. dollar terms unless otherwise indicated. in these asset classes and strategies is typically far wider than for traditional asset classes.3 U.S. Intermediate Treasury returns based on Barclays Capital U.S. Treasury: 7–10 Year Index. See additional notes on the following page.4 U.S. Long Treasury returns based on Barclays Capital U.S. Treasury: 20+ Year Index.
    • Expected annualized volatility (%)2 Correlation Matrix Expected U.S. Intermediate Treasury3 compound return (%)2 U.S. Inflation U.S. Short Duration Gov’t/Credit Expected U.S. Long Treasury4 U.S. Cash arithmetic return (%)2 U.S. Long Duration Gov’t/Credit U.S. Investment Grade Corporate U.S. Inflation 2.51 2.50 1.50 1.00 Emerging Markets Local Currency Sovereign Debt (unhedged) U.S. Aggregate U.S. Cash 1.75 1.75 0.50 0.08 1.00 U.S. TIPS U.S. Intermediate Treasury3 3.24 3.00 7.00 -0.29 -0.01 1.00 World Government Bond (hedged) World ex-U.S. Government Bond (hedged) U.S. Long Treasury4 2.94 2.00 14.00 -0.33 -0.03 0.90 1.00 World Government Bond (unhedged) World ex-U.S. Government Bond (unhedged) Emerging Markets Sovereign Debt (unhedged) U.S. Long Corporate U.S. TIPS 3.97 3.75 6.75 0.05 -0.07 0.66 0.51 1.00 U.S. Aggregate 3.58 3.50 4.00 -0.26 -0.05 0.88 0.78 0.78 1.00 U.S. Leveraged Loan U.S. High Yield Emerging Markets Corporate Debt (unhedged) U.S. Short Duration Gov’t/Credit 2.01 2.00 1.50 -0.20 0.21 0.70 0.48 0.63 0.78 1.00 U.S. Long Duration Gov’t/Credit 3.71 3.25 9.75 -0.30-0.10 0.85 0.87 0.68 0.92 0.60 1.00 U.S. Investment Grade Corporate 4.54 4.25 7.75 -0.24 -0.12 0.57 0.51 0.66 0.83 0.64 0.81 1.00FIXED INCOME U.S. Long Corporate 4.80 4.25 10.75 -0.26 -0.15 0.59 0.61 0.64 0.83 0.52 0.87 0.94 1.00 U.S. High Yield 7.63 6.50 15.75 -0.04 -0.11-0.06-0.09 0.34 0.31 0.17 0.28 0.61 0.61 1.00 U.S. Leveraged Loan 7.04 6.00 15.00 0.12-0.10-0.26-0.28 0.22 0.09-0.02 0.07 0.42 0.39 0.79 1.00 World Government Bond (hedged) 3.04 3.00 3.00 -0.35 0.03 0.88 0.82 0.51 0.80 0.66 0.79 0.53 0.55 -0.08 -0.28 1.00 World Government Bond (unhedged) 2.75 2.50 7.25 -0.13 0.00 0.62 0.49 0.63 0.69 0.67 0.60 0.57 0.55 0.25-0.03 0.60 1.00 World ex-U.S. Government Bond (hedged) 3.04 3.00 2.75 -0.34 0.03 0.76 0.73 0.40 0.70 0.57 0.70 0.48 0.50 -0.07-0.25 0.94 0.54 1.00 World ex-U.S. Government Bond (unhedged) 2.60 2.25 8.50 -0.10-0.01 0.51 0.38 0.59 0.61 0.61 0.51 0.54 0.51 0.30 0.02 0.51 0.96 0.47 1.00 Europe ex-U.K. Large Cap (unhedged) U.S. Municipal Emerging Markets Sovereign Debt (unhedged) 5.57 5.00 11.00 -0.11-0.09 0.33 0.22 0.57 0.61 0.43 0.54 0.72 0.71 0.73 0.47 0.27 0.50 0.24 0.50 1.00 U.S. Large Cap Emerging Markets Local Currency 8.16 7.50 12.00 0.02 0.01 0.10 0.00 0.42 0.37 0.32 0.29 0.53 0.50 0.68 0.39 0.09 0.56 0.09 0.60 0.76 1.00 Sovereign Debt (unhedged) U.S. Large Cap Value U.S. Mid Cap U.S. Large Cap Growth U.S. Small Cap Japan Large Cap (unhedged) Emerging Markets Corporate Debt (unhedged) 7.01 6.50 10.50 -0.07 -0.11 0.31 0.18 0.62 0.60 0.42 0.54 0.78 0.73 0.71 0.60 0.22 0.44 0.18 0.44 0.87 0.69 1.00 U.S. Municipal 3.32 3.25 3.75 -0.12-0.08 0.54 0.45 0.55 0.69 0.54 0.60 0.63 0.59 0.25 0.24 0.53 0.43 0.48 0.38 0.43 0.21 0.43 1.00 U.K. Large Cap (unhedged) Emerging Markets Equity (unhedged) U.S. Large Cap 8.71 7.25 18.00 0.00-0.04-0.25-0.28 0.10 0.02-0.07 -0.02 0.26 0.24 0.69 0.48 -0.25 0.16 -0.22 0.23 0.59 0.65 0.50-0.04 1.00 U.S. Mid Cap 10.23 8.00 22.50 0.02-0.06-0.24-0.26 0.14 0.03-0.07 0.01 0.30 0.29 0.73 0.54 -0.25 0.14 -0.22 0.21 0.59 0.66 0.54 0.00 0.95 1.00 Asia ex-Japan Equity (unhedged) EAFE Equity (hedged) U.S. Small Cap 9.57 7.75 20.25 0.04-0.06-0.32-0.32 0.07-0.07-0.16 -0.07 0.20 0.21 0.67 0.49 -0.32 0.08 -0.28 0.14 0.48 0.63 0.45 -0.05 0.89 0.93 1.00 EAFE Equity (unhedged) U.S. Large Cap Value 8.71 7.00 19.50 -0.02 -0.03 -0.21-0.24 0.10 0.05-0.04 0.01 0.27 0.26 0.69 0.46 -0.20 0.20 -0.17 0.26 0.60 0.68 0.52 -0.02 0.96 0.94 0.89 1.00 U.S. Value Added Real Estate (unlevered)5,6 U.S. Large Cap Growth 9.04 7.50 18.50 0.03 -0.05-0.28-0.31 0.10-0.02-0.09 -0.05 0.25 0.23 0.69 0.51 -0.30 0.11 -0.27 0.18 0.56 0.61 0.48-0.04 0.96 0.94 0.88 0.93 1.00 U.S. Direct Real Estate (unlevered)5,6 European Direct Real Estate (unlevered)5,6 Global Equity (unhedged) Europe ex-U.K. Large Cap (unhedged) 10.25 7.25 26.25 -0.01 0.03 -0.21-0.25 0.10 0.06 0.03 0.02 0.31 0.29 0.69 0.46 -0.21 0.32 -0.17 0.39 0.61 0.75 0.52 -0.06 0.90 0.86 0.79 0.90 0.87 1.00EQUITY Japan Large Cap (unhedged) 7.40 5.50 20.50 -0.01-0.01-0.06-0.06 0.22 0.17 0.11 0.17 0.40 0.37 0.56 0.41 -0.10 0.25 -0.10 0.28 0.47 0.55 0.47 0.03 0.57 0.60 0.58 0.59 0.54 0.60 1.00 U.K. Large Cap (unhedged) 9.49 7.25 22.50 0.03 0.00-0.25-0.31 0.11 0.05 0.02 -0.01 0.34 0.29 0.66 0.52 -0.26 0.26 -0.23 0.34 0.60 0.71 0.56 0.01 0.85 0.81 0.73 0.85 0.83 0.92 0.60 1.00 U.S. Private Equity5,6 EAFE Equity (hedged) 9.04 7.50 18.50 -0.04 0.03-0.35-0.32-0.07-0.08-0.16 -0.07 0.23 0.22 0.66 0.54 -0.32-0.04 -0.26 0.02 0.52 0.56 0.44 -0.11 0.87 0.86 0.79 0.87 0.86 0.86 0.68 0.84 1.00 EAFE Equity (unhedged) 9.39 7.00 23.25 -0.02 0.01-0.20-0.23 0.15 0.10 0.06 0.06 0.37 0.34 0.72 0.50 -0.20 0.32 -0.17 0.39 0.65 0.77 0.57 -0.02 0.90 0.88 0.80 0.90 0.87 0.96 0.71 0.93 0.89 1.00 Emerging Markets Equity (unhedged) 13.23 9.75 28.75 -0.01 0.04-0.19-0.23 0.20 0.09 0.04 0.05 0.34 0.33 0.68 0.48 -0.21 0.24 -0.18 0.30 0.64 0.78 0.57 -0.02 0.81 0.83 0.77 0.80 0.81 0.86 0.65 0.83 0.83 0.90 1.00 Asia ex-Japan Equity (unhedged) 11.84 9.50 23.25 -0.01 0.04 -0.21-0.25 0.20 0.08 0.02 0.05 0.36 0.34 0.69 0.53 -0.21 0.21 -0.17 0.27 0.58 0.73 0.55 0.00 0.77 0.79 0.75 0.75 0.78 0.81 0.63 0.78 0.79 0.84 0.94 1.00 Global Infrastructure5,6 Hedge Fund­­—Diversified5,6 Global Equity (unhedged) 9.46 7.50 21.00 0.00 0.00-0.23-0.27 0.14 0.06 0.00 0.02 0.33 0.31 0.73 0.52 -0.24 0.25 -0.21 0.32 0.65 0.75 0.57 -0.03 0.94 0.92 0.86 0.93 0.92 0.95 0.67 0.92 0.90 0.97 0.91 0.86 1.00 Hedge Fund­­—Event Driven5,6 U.S. Private Equity5,6 10.82 8.00 25.50 -0.01-0.09-0.30-0.30 0.07-0.05 -0.12 -0.05 0.23 0.22 0.69 0.52 -0.29 0.11 -0.24 0.18 0.49 0.62 0.46 -0.05 0.89 0.93 0.94 0.88 0.88 0.80 0.60 0.73 0.80 0.82 0.78 0.76 0.87 1.00 Hedge Fund­­—Relative Value5,6 U.S. Direct Real Estate (unlevered)5,6 7.17 6.50 12.00 0.05-0.03 0.00-0.01 0.17 0.15 0.06 0.12 0.22 0.23 0.39 0.27 0.00 0.17 0.01 0.19 0.30 0.35 0.28 0.11 0.35 0.40 0.42 0.38 0.32 0.31 0.29 0.29 0.28 0.32 0.29 0.30 0.34 0.37 1.00 U.S. REITs Hedge Fund­­—Long Bias5,6 U.S. Value Added Real Estate (unlevered)5,6 9.08 8.00 15.50 0.05-0.02-0.05-0.06 0.10 0.07 0.02 0.05 0.14 0.15 0.30 0.21-0.04 0.12 -0.03 0.14 0.23 0.28 0.21 0.05 0.28 0.32 0.34 0.31 0.26 0.27 0.23 0.25 0.24 0.27 0.24 0.24 0.28 0.30 0.70 1.00 European Direct Real Estate (unlevered)5,6 7.14 6.00 15.75 0.03-0.02-0.01-0.05 0.16 0.12 0.10 0.08 0.18 0.19 0.30 0.20 0.01 0.23 0.02 0.26 0.32 0.37 0.29 0.05 0.31 0.33 0.34 0.34 0.27 0.35 0.25 0.33 0.25 0.35 0.28 0.26 0.33 0.31 0.50 0.50 1.00ALTERNATIVE/OTHER U.S. REITs 9.10 6.75 23.00 0.08-0.06-0.08 -0.11 0.24 0.18 0.05 0.14 0.34 0.36 0.69 0.49 -0.08 0.25 -0.06 0.29 0.53 0.62 0.48 0.14 0.70 0.76 0.79 0.74 0.66 0.63 0.53 0.58 0.58 0.64 0.57 0.58 0.67 0.71 0.60 0.45 0.43 1.00 Hedge Fund­­—Macro5,6 Global Infrastructure5,6 8.46 7.75 12.50 0.10-0.02 0.19 0.15 0.29 0.29 0.19 0.25 0.28 0.28 0.29 0.17 0.15 0.26 0.13 0.26 0.32 0.32 0.29 0.19 0.26 0.29 0.28 0.28 0.23 0.23 0.23 0.20 0.17 0.24 0.21 0.21 0.25 0.24 0.28 0.20 0.20 0.45 1.00 Commodities (spot)5 Hedge Fund—Diversified5,6 6.30 6.00 8.00 0.01 0.06-0.25-0.26 0.16 0.02 0.00 0.02 0.35 0.30 0.53 0.52 -0.25 0.11 -0.22 0.17 0.44 0.55 0.48 0.06 0.59 0.64 0.58 0.56 0.63 0.64 0.59 0.71 0.69 0.71 0.78 0.75 0.71 0.62 0.16 0.14 0.17 0.35 0.09 1.00 Hedge Fund—Event Driven5,6 6.72 6.25 10.00 -0.02-0.02-0.29-0.33 0.14 0.01-0.03 -0.01 0.36 0.31 0.72 0.61 -0.28 0.14 -0.24 0.22 0.57 0.64 0.58 0.03 0.81 0.84 0.80 0.78 0.83 0.81 0.61 0.82 0.81 0.85 0.85 0.82 0.87 0.85 0.27 0.23 0.26 0.55 0.17 0.87 1.00 Hedge Fund—Long Bias5,6 7.84 7.00 13.50 0.00 0.01-0.31-0.35 0.13-0.02-0.04-0.04 0.31 0.27 0.69 0.55 -0.32 0.15 -0.28 0.22 0.55 0.69 0.54-0.04 0.84 0.87 0.82 0.81 0.85 0.85 0.67 0.85 0.85 0.89 0.92 0.89 0.91 0.85 0.28 0.24 0.26 0.57 0.18 0.87 0.94 1.00 Gold (spot) Hedge Fund—Relative Value5,6 5.38 5.00 9.00 -0.05-0.03 -0.17 -0.21 0.24 0.18 0.10 0.16 0.55 0.50 0.79 0.76 -0.19 0.12 -0.17 0.17 0.66 0.61 0.71 0.20 0.64 0.68 0.58 0.61 0.66 0.68 0.59 0.74 0.73 0.74 0.76 0.75 0.74 0.64 0.23 0.19 0.21 0.45 0.16 0.83 0.86 0.82 1.00 Hedge Fund—Macro5,6 6.97 6.25 12.50 -0.05 0.12 0.06 0.03 0.27 0.13 0.23 0.12 0.22 0.18 0.08 0.02 0.07 0.42 0.06 0.45 0.15 0.36 0.17 0.09 0.15 0.19 0.19 0.16 0.16 0.28 0.38 0.31 0.17 0.34 0.42 0.40 0.29 0.21 0.05 0.05 0.09 0.10 0.05 0.61 0.40 0.45 0.30 1.00 Commodities (spot)5 7.31 5.75 18.50 0.23 0.04 -0.12-0.20 0.33 0.08 0.11 0.02 0.25 0.22 0.36 0.27 -0.18 0.30 -0.19 0.36 0.39 0.54 0.43 -0.07 0.43 0.47 0.40 0.42 0.43 0.50 0.39 0.58 0.37 0.55 0.60 0.56 0.54 0.38 0.16 0.15 0.22 0.32 0.15 0.58 0.52 0.61 0.49 0.54 1.00 Gold (spot) 7.80 6.25 18.50 0.00 0.03 0.24 0.12 0.43 0.30 0.32 0.22 0.25 0.23 0.11 0.02 0.14 0.48 0.08 0.48 0.36 0.46 0.37 0.16 0.09 0.13 0.11 0.11 0.08 0.16 0.22 0.18-0.04 0.21 0.33 0.28 0.19 0.10 0.09 0.07 0.13 0.14 0.13 0.30 0.22 0.29 0.23 0.50 0.51 1.00Note: All estimates on this page are in U.S. dollar terms. Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations to all the above asset classes and strategies. Please note that all information shown is basedon qualitative analysis. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. Note that these asset class and strategy assumptions are passive only–they do not consider the impact ofactive management. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial markettrends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for information purposes only and is not intended to provide, andshould not be relied on for, accounting, legal or tax advice. See footnotes on the prior page.
    • Expect prolonged deleveraging to subdue growth and keep rates low for longer; however, risk assets should yield respectable returns. J . P. M O R G A N A S S E T M A N A G E M E N T | 270 Park Avenue, New York, NY 10017 | jpmorganinstitutional.comJ.P. Morgan Asset Management Long-term Capital Market Return Assumptions are developed each year by our Assumptions Committee, a multi-asset class team of senior investors from across the firm. The Committee relies on the input and expertise of a range of portfolio managers andproduct specialists, striving to ensure that the analysis is consistent across asset classes. The final step in the process is a rigorous review of theproposed assumptions and their underlying rationale with the senior management of J.P. Morgan Asset Management.Our capital market assumptions are used widely by institutional investors—including pension plans, insurance companies, endowments andfoundations—to ensure that investment policies and decisions are based on real-world, consistent views and can be tested under a varietyof market scenarios.INST-LTCMR A 2012-FOC-P1 FOR INSTITUTIONAL AND PROFESSIONAL INVESTORS ONLY | NOT FOR RETAIL USE OR DISTRIBUTION FOR UK/EMEA INVESTORS: FOR PROFESSIONAL CLIENTS ONLY | NOT FOR RETAIL USE OR DISTRIBUTIONAssumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current marketconditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for informationpurposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice.J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan AssetManagement (UK) Limited, which is regulated by the Financial Services Authority; in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Switzerland by J.P. Morgan (Suisse) SA, which is regulated by the SwissFinancial Market Supervisory Authority FINMA; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, all of which are regulated by the Securitiesand Futures Commission; in India by JPMorgan Asset Management India Private Limited, which is regulated by the Securities & Exchange Board of India; in Singapore by JPMorgan Asset Management (Singapore) Limited, whichis regulated by the Monetary Authority of Singapore; in Japan by JPMorgan Securities Japan Limited, which is regulated by the Financial Services Agency; in Australia by JPMorgan Asset Management (Australia) Limited, which isregulated by the Australian Securities and Investments Commission; in Brazil by Banco J.P. Morgan S.A., which is regulated by The Brazilian Securities and Exchange Commission (CVM) and Brazilian Central Bank (Bacen); and in Canadaby JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in Canada (including Ontario) and in addition, is registered as an Investment Fund Manager in British Columbia. Thiscommunication is issued in the United States by J.P. Morgan Investment Management Inc., which is regulated by the Securities and Exchange Commission. Accordingly this document should not be circulated or presented to persons otherthan to professional, institutional or wholesale investors as defined in the relevant local regulations. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested.Copyright © 2012 JPMorgan Chase & Co.