2021 Capital Market Assumptions

2021 Capital Market Assumptions

Voya’s 2021 Capital Market Assumptions are a key input into our strategic asset allocation process for multi-asset portfolios.

Executive Summary

Our 2021 Capital Market Assumptions details our research on asset class returns, standard deviations of returns and correlations over the 2021–2030 timeframe. These estimates are a key input into our strategic asset allocation process for our multi-asset portfolios; they also provide a context for evaluation of the macroeconomic inputs that support the return estimates.

We expect that the next ten-year period will be characterized by returns below historical averages, to varying degrees across all asset classes. Our current forecast is for U.S. and international developed market equities to produce mid single-digit returns, which are similar to what was forecasted last year.

The macro inputs of a historically low potential GDP growth trajectory, reduced labor supply and an economy laboring to exit a shallow productivity regime inform our forecasts. To combat utilizing a single point estimate forecast, we incorporate an alternate scenario into our methodology. This step delivers a holistic approach to our macro inputs, which produces blended estimates. Each year the asset allocation team determines through its research process if the alternative scenario is to have slightly better or worse macro inputs. This year we again used marginally higher productivity and lower terminal fed funds rate inputs for the alternative case scenario.

In most cases, expected risk-adjusted returns for developed international market assets are lower than those for comparable U.S. assets. This partially reflects better U.S. growth. Expected returns for emerging market equities are similar to U.S. large-cap returns. With a more uncertain path to growth than that of developed markets, emerging markets continue to have higher expected equity return volatility.

Our bond return assumptions imply that returns generally will be in the low single digits. We note that our projections assume that moves in both bond term premiums and real interest rate premiums will cap upside returns available to fixed income assets.


1 Macroeconomic Advisors is an independent research firm focused on the U.S. economic outlook, monetary policy, and fixed income markets. MA is known for its ability to combine a rigorous, model-based approach with keen judgment to produce award-winning forecasts and insightful commentaries. The combination of rigorous analytical methods with an unmatched understanding of how monetary policy is conducted delivers an unbiased and thoughtful analysis of where the U.S. economy is headed.

2 “Understanding Glide Path Design: Distribution of Labor Income among Participant Populations,” Sinha, A. and Yuen, R., Voya Investment Management, 2Q18.

3 Mahalanobis, P., “On the Generalized Distance in Statistics,” Proceedings of the National Institute of Sciences of India vol. 2 no. 1 (1936): 49–55.

4 Kritzman, M. and Y. Li, “Skulls, Financial Turbulence, and Risk Management,” vol. 66 no. 5 (2010): 30–41.

5 Hall, R., “Stochastic Implications of the Life-Cycle-Permanent Income Hypothesis: Theory and Evidence,” Journal of Political Economy 86 (1978): 971–988.

6 Poterba, J. and Summers, L., “Mean Reversion in Stock Prices: Evidence and Implications,” Journal of Financial Economics 22 (1988): 27–60.

7 Ljung, G.M. and Box, G.E.P., “On a Measure of Lack of Fit in Time Series Models,” Biometrika, 65, (1978): 297–303.

8 The p-value is the probability of rejecting the null hypothesis of no serial correlation when it is true (i.e., concluding that there is serial correlation in the data when in fact serial correlation does not exist). We set critical values at 10% and thus reject the null hypothesis of no serial correlation for p-values <10%.

9 Khandani, A.E. and Lo, A., “Illiquidity Premia in Asset Returns: An Empirical Analysis of Hedge Funds, Mutual Funds, and U.S. Equity Portfolios,” Quarterly Journal of Finance 1 (2011): 205–264.

Past performance does not guarantee future results.

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.

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