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DWS Long View Q4 - 2024

Multi Asset

2/25/2025

Jason Chen

Senior Portfolio Strategist

Dirk Schlüter

Co-Head, DWS House of Data

  • Return forecasts for the next decade are modestly higher versus the end of Q3, with fixed income and rate-sensitive asset classes experiencing the most positive quarter-over-quarter changes
  • A marginally higher annual return forecast across global equities is reflective of a slight increase in global growth estimates (driven by the US) and less challenging valuations in Europe. Our strategic return outlook for European equities now exceeds the US by roughly 65bps per annum.
  • Within fixed income, the strategic outlook for US credit markets has increased, reflecting higher long-term yields we saw during Q4. Notably, this has pushed the forecast for US High Yield back in line with US equities.
  • Return forecasts across alternatives are largely unchanged with the exception of REITs whose attractiveness has increased primarily because of 40-50bps higher dividend yields.

In this report, we present the DWS long-term capital market assumptions for major asset classes as of the end of 2024 while exploring the risks to these forecasts.

Throughout the fourth quarter of 2024, global equity markets experienced some choppiness, driven by concerns around Fed policy but bolstered by continued resilient earnings growth. Despite the volatility, the MSCI All Country World (“ACWI”) index was down just -1.0% for the quarter. Over the same period, the S&P 500 returned 2.4%, while international developed markets and emerging markets were down -8.1% and -8.0%, respectively, driven predominantly by weakness in non-dollar currencies. In local currency terms, MSCI EAFE was down just -0.4%, while MSCI Emerging Markets returned -4.4% for Q4.

Global fixed income markets experienced a somewhat challenging quarter, as US sovereign bond yields in particular repriced higher in anticipation of potentially more stubborn inflation stemming from global trade tariff policy. For the quarter, the 10-year US Treasury yield increased by 79bps (from 3.79% to 4.57%), resulting in the Bloomberg US Aggregate Bond Index and the Bloomberg US Treasury Index each returning -3.1%. Alternatively, the Bloomberg Global Aggregate Bond Index was down a more modest -1.0%. Across the credit complex, modest tightening in credit spreads helped to alleviate some of the move higher in interest rates. The shorter duration, most spread-driven Bloomberg US High Yield Bond Index was modestly positive for the quarter, returning 0.2%, while the longer-duration, higher quality Bloomberg US Corporate Bond Index returned -3.0%.

Heading into 2025, questions still remain around government policy and its potential to impact inflation, and by extension, interest rates. Optimism around the transformative impact of Artificial Intelligence remains firm; however, investors are becoming increasingly concerned about the risk concentration and demanding valuations among the Magnificent 7 stocks. Looking at the long-term outlook, global equities face a potentially more difficult decade relative to the lofty return experience of the previous decade. In fixed income, despite higher inflation levels and tight credit spreads, sovereign bond yields provide increasingly favorable starting income levels for strategic investors.

Our models now forecast an annual local currency return of 5.9% for the MSCI All Country World Index (“ACWI”) over the next decade, versus 5.7% three months prior as well as an increase for the Global Aggregate Bond Index from 3.2% to 3.7%. At an aggregate level, we estimate the forecasted rate of return on a diversified portfolio at 5.6%*, up from 5.2% at the end of Q3.

*Source: Bloomberg as of 31 December 2024. DWS Calculations for a strategic asset allocation that targets volatility of 10%.

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Any mentions of specific properties or securities are for illustrative purposes only and should not be considered a recommendation.

Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index.

Diversification neither assumes a profit nor guarantees against loss. 

Companies involved in artificial intelligence (AI) and big data face intense competition, may have limited product lines, markets, financial resources, and personnel. Artificial intelligence and big data companies are also subject to risks of new technologies and are heavily dependent on patents and intellectual property rights and the products of these companies may face obsolescence due to rapid technological developments. 

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expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. 

as of 2/25/25; 104841_1 (2/2025) (2/2026)