GMO’s most recent 7-year forecast does not paint an especially pretty picture for stocks or for bonds.
If these prognostications for U.S. large stocks come to pass, it would be just the 4th time that they experienced a -3.3% real total return over a 7-year period.
GMO is hardly alone in their forecast for lower future returns, which is at least partly why endowments are so heavily allocated towards alternative strategies. Plain vanilla beta has delivered incredible risk-adjusted returns, so perhaps now is a good time to look for alternatives.
The thing is, a lot of the giant endowments have been underweight plain vanilla beta over the last ten years, and as such have failed to outperform it. But, is this really the right benchmark?
Why would an institution ever be indexed to a US only benchmark? pic.twitter.com/dUBdEiaILc
— Jake (@EconomPic) October 15, 2019
And why do people spend so much time dissecting the performance of these giant endowments. Shouldn’t more time be focused on policy rather than investments? Barry and I get into this and much more in the video below.