Pimco says average stock market returns to drop by half

Low economic growth could keep deficits high, pressuring corporate profits

Nov 13, 2012 @ 2:12 pm

Pacific Investment Management Co., manager of the world's largest mutual fund, said returns from U.S. equities will decline from their historic averages over the next decade as the U.S. economy grows at a slower pace.

Equities will return an annualized 4 percent to 5.1 percent over the coming five to 10 years, down from their historical rate of almost 10 percent, Saumil Parikh, a portfolio manager who leads Newport Beach, California-based Pimco's cyclical forum, said in a November asset allocation report being posted on the firm's website today.

“If investment in the U.S. economy does not pick up substantially over the next five to 10 years, the unsustainability of large public sector deficits will put tremendous pressure on corporate profits and their ability to keep up with nominal GDP growth,” Parikh said.

Bill Gross, Pimco's founder and co-chief investment officer, said in his August investment outlook that the cult of equity was dying and returns of 6.6 percent above inflation, known as the Siegel Constant, wouldn't be seen again. In his September outlook he said stocks would still outperform bonds, even as returns for both would be stunted.

Pimco, home to the $281 billion Pimco Total Return Fund, started offering equity funds almost three years ago with the opening of its EqS Pathfinder Fund.

The U.S. will have slower economic growth because there will be more retirees than workers and productivity will decline because of less investment, Parikh said. Growth in nominal gross domestic product will slow to 4 percent to 5 percent from an average of 6.4 percent over the past 110 years, he said.

“These forecasts reflect the environment of financial repression the U.S. economy finds itself in today due to deleveraging, and one that we see persisting to some degree over the next five to 10 years,” he wrote.

--Bloomberg News--

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Why broker-dealers are on a roll

Deputy editor Bob Hordt and senior columnist Bruce Kelly discuss last year's bounce-back for IBDs.

Latest news & opinion

UBS continues to cut loans to recruits, while increasing compensation to brokers

The wirehouse reduced recruitment loans 20% and increased bonus loans 68% in the first quarter.

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print