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GMO Gives Long-Term View of Best Investments

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Seven years is a long time in the investment world, especially for Jeremy Grantham, whose environmental, social and governance investing dovetails with his fire-and-brimstone speeches on the danger of climate change. Still, his firm GMO released its long-term forecast this week on various asset classes.

“Our forecasts continue to favor emerging markets in both the equity and credit markets,” said John Thorndike, member of the GMO Asset Allocation team, in a statement. “As of the end of September, the spread between our forecasts for emerging markets equities and large-cap U.S. stocks was nearly 8.5%. You have to go back to 2003 to find a wider spread in favor of EM.”

(Related: GMO’s Inker: Stick With Emerging Markets Despite Routs)

GMO’s forecast reveals that emerging markets might be the only place to be. The forecast for U.S. large-cap stocks’ annual real return over seven years is -5.2%, with small-caps at -2.1%. U.S. high-quality stocks are forecast to return -4.7%, while large international stocks will return   -0.5% and small international stocks will return -0.4%. Emerging markets was the only winner, with a 3.2% return.

The credit side is a bit more positive. U.S. bonds are forecast to be a wash at 0.0%, while international bonds come in at -1.8%. Like its stock brethren, emerging debt is a positive at 2.2% return. U.S. inflation linked bonds are a -0.2% while U.S. cash will be 1%.

“At the other end of the investment spectrum, the continued rise in short-term interest rates has pushed our forecast for U.S. cash to 1% real, which provides a tailwind for investors who hold short-term investments in their portfolios,” Thorndike said.

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