Asset Allocation

Expected Returns (as of 05/31/2016)


Welcome to the Research Affiliates Asset Allocation site where, using a structural building-block approach, we provide long-term capital market forecasts across a variety of asset classes. The navigation tabs can be used to explore core assets (Overview, Risk, Portfolios tabs) or to do a deeper dive into specific asset classes.

How to Use Shiller P/E – Equities Valuation

The Shiller P/E can be used in a valuation context, by comparing the current multiple to the historical values. As the multiple gets stretched far beyond the average, reversion is expected to occur. Although the Shiller P/E is widely adopted by many practitioners, its critics often point to the following:

  • It's skewed by including depressed earnings from the financial crisis. This is true, but it also includes the pre-crisis all-time high earnings. The purpose is to smooth earnings over the cycle, and it does just that.

  • Low global interest rates support higher valuation multiples. Even under this assumption, many countries have current multiples well outside of their historical bounds.

Compare the Shiller P/E of Up to Eight Markets

Countries trade at very different Shiller P/E multiples, which can be viewed in the context of their historical averages. Ideally the Shiller P/E should be viewed in the context of very long time histories, and care should be taken when viewing multiples based on short time series.
Note: Aggregate country indices are based on USD inputs.

  • Developed Markets

  • Emerging Markets

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It’s not enough to look at past performance when thinking about future investment. In many cases, the best-performing asset classes of the past are not expected to continue to be the best in the future. All returns are presented in real terms (net of inflation), in order to show change in investors’ actual capacity to consume.​

10-Year Relative Rank columns identify the assets with the highest (longest green bar) and lowest (longest red bar) return as compared to all other assets.

The Research Affiliates Approach to Capital Markets Forecasting

With the objective of providing transparency to our long-term expected returns, the documents at right detail the methodologies underlying our models. A good place to start is with the methodology overview document, which provides background on the building block approach. This is the common framework that serves as the foundation on which each model is built. Each asset class then has its own methodology document detailing specifics related to that asset class. These are living documents that will evolve over time, and we encourage you to check back in the future for updates.

Deepen Your Understanding

How Can "Smart Beta" Go Horribly Wrong?If investors don’t wise up soon that rising valuations are responsible for most of the “alpha” produced by smart beta, the inevitable mean reversion to historical valuation norms threatens to unleash a smart beta crash.
Reeling In Small-Cap AlphaSmall size alone does not guarantee excess return, but implementing an outperforming strategy, such as value or momentum, in the universe of small company stocks increases alpha-producing opportunities.
Are Buybacks an Oasis or a Mirage?Buybacks over the last few years have swept fast and furiously through the U.S. equity market just like a Saharan sirocco. But have stockholders benefitted? A tally of the new issuance during the period answers the question.