The Index Standard® Forecasts present future expected returns in three ways: low, high, and their average, along with historical returns accompanied by some benchmarks.
Our forecasted returns assist readers in thinking about the future. Creating accurate forecasts for 10 years out is difficult; however, we believe that our forecasts can be a useful guideline for thinking critically about expected returns. They can also be used as a sorting mechanism to help rank between indices or asset classes.
Finally, if you are considering two similar indices, our forecasts may assist in your selection process. The forecasted returns represent our best efforts to project the returns and are based on our estimates and reflect our subjective judgments, inputs, and assumptions. Our forecasts are not necessarily indicative of future performance, which could differ materially, but are based on our best efforts using what we think is a deep and thoughtful process. We want to draw attention to this point here and not in the small print below.
The Index Standard® forecasts use a proprietary process to evaluate indices and produce expected return projections for a variety of indices.
We run our process in several ways. Firstly, we regularly obtain long term capital market assumptions from major investment banks and asset management firms across all asset classes. We then combine these to get aggregate expected returns.
Secondly, we then use a comprehensive analytical process for each index to narrow down the critical characteristics of that particular index. We differ here from many others in the industry that look at just a few investment characteristics. We then seek to understand how these characteristics impact each other and then incorporate this into our process.
Finally, we run thousands of simulations using our aggregate expected returns and the critical characteristics of each particular index to obtain our expected forecasted return projections.
As with our ratings, all indices are evaluated at the same time, ensuring consistency and appropriateness.