GMO is out with its latest monthly asset class real returns forecast for this month. The system is largely predicated on mean reversion and so you’ll typically see the most loved sectors projected to have the worst returns (US small caps this go-round) for the future period. Barry and I are huge fans of Jeremy Grantham, James Montier and the rest of the thought leadership cabal at GMO, we always take their insights as important food for thought.
What’s notable in this month’s edition is how no asset class is projected to be able to even meet their long-term equity return measurement of 6.5% real (inflation-adjusted). The asset class they’d appear to be most constructive on for the seven year period, emerging market stocks, doesn’t even get you halfway there. But they see high potential returns for timber, which would fly in the face of the idea that paper is already dying in our tablet-based economy. My kids will be headed to school with iPads in a year or two, we’re told, not textbooks. And it’s pretty hard to find a waiter or waitress taking orders on a pad in cutting-edge Brooklyn.
Sometimes a secular downtrend will appear to be a cyclical one at first. Timber may be exactly that – unless you tell me we’re going to see another massive homebuilding wave this decade.
Anyway, here’s the forecast chart:
Also, do not miss Ben Inker and Jeremy Grantham’s latest quarterly letter at the link below, you’ll have to register but it’s worth it.