Major asset return and risk forecasts

We see value in cash and have been building cash across our portfolios. The rationale is that we think it’s a sensible place to be invested, not for the long term, but as a store of value as issues in other assets resolve themselves. The chart below highlights our three-year return forecast against risk (focusing on the probability of loss). This chart shows that overall forecast returns for most assets are pretty low. This is especially true for global bond markets primarily due to recent monetary policy measures by many central banks. Starting point yields are very low, therefore by definition; returns on these bonds will be low. Australian bonds in our three-year forecasting fair slightly better predominantly because the starting point yields are higher. In the equity space we like Australian equities relative to broader global equities. The Australian market lag on the back of the commodity story has seen it underperform in recent years; we are looking for it to outperform over the next three.