Twice a year, we update our Long-Term Market Expectations (LTMEs) for major asset classes over a 10-year and 30-year investment horizon. Based on our building-block methodology (10-year) and risk premia methodology (30-year), these projections are the foundation of National Bank Investments’ strategic asset allocation (SAA) and portfolio construction.
For this edition, the projected annual return for a reference balanced portfolio¹ is 5.4% over a 10-year horizon. While below the 8.5% return recorded over the past ten years, this represents a notable improvement from the 4.8% forecast in last spring’s update, reflecting more favourable prospects for both equities and bonds.
For the Canadian fixed-income market, our model projects a 10-year annual return of 4.2%, up from 3.7% six months ago, reflecting the rise in bond yields and, consequently, yields to maturity. In equities, the expected 10-year annual return for our benchmark index² has risen from 5.5% to 6.3%, driven by improved earnings growth prospects and more attractive valuations.
Ultimately, beyond the inevitable short-term fluctuations, the long-term outlook remains largely favourable for investors, although returns are reasonably expected to be more modest than in recent years.
5 takeaways:
1. The outlook has improved but remains below past returns. The reference balanced portfolio has a projected annual return of 5.4% over a 10-year horizon, up from 4.8% in last spring’s update, but below the 8.5% return recorded over the past 10 years.
2. Canadian fixed income has become more attractive. Its projected 10-year annual return has risen from 3.7% to 4.2%, mainly reflecting the rise in bond yields.
3. The outlook for equities has also been revised upward. The expected 10-year annual return for the equity benchmark has increased from 5.5% to 6.3%, driven by improved earnings growth prospects and more attractive valuations.
4. Portfolio composition involves a trade-off between downside protection and growth. In the simulations presented, a higher allocation to bonds protects against losses but limits upside potential.
5. The investment horizon
matters. For a balanced 60/40 portfolio, the simulations show a
wider range of outcomes in the short term; over the longer term,
positive returns become the norm.