Crystal Ball – Economists Foresee More Volatility, Lower Returns

June 26, 2000 ( - Plan sponsors - and participants - might want to start resetting their expectations for market returns, based on the findings of a new KPMG poll of top economists and strategists. The poll of leading economists anticipates continued market volatility and a decline in US stock market returns from the rosy returns booked in the past five years.

Over the next five years, the respondents expect an annualized return of 9.1% compared with the 23% annualized return of the last five years.

“Given the dramatic returns seen over the last two decades, investors must now anticipate more reasonable performance in the future and allocate and deploy their investments accordingly,” said Neil Wolfson, national partner in charge of KPMG’s Investment Consulting Group, which conducted the survey. “Many investors have seen their equity allocation increase with the market. Investors need to determine an asset allocation which is prudent for them rather than letting the market dictate their investment portfolio.’

The survey, titled KPMG’s 24th Annual Survey of Economic and Capital Market Expectations, assumes a 2.5% rate of inflation and foresees double digit returns in some asset classes:

  • venture capital
  • international small-cap equities
  • emerging market equities
  • small-cap equities
  • emerging market bonds
  • international equities

For all other asset classes respondents forecast single-digit returns.

KPMG conducted its survey by polling representatives – including portfolio managers and chief investment officers – from 66 leading international financial institutions and investment organizations, which are responsible for managing more than $3.8 trillion in client assets.