Our 2026 capital market assumptions (CMAs) are broadly lower across stocks and bonds relative to last year.
Valuations in equities appear stretched, as multiples have reached historic highs. Updates to our fixed income
expectations varied by sector but are marginally lower in aggregate, as higher expected terminal yields were
offset by lower starting yields.
Our CMAs are projected over a 20-year horizon.
Long-term expected returns (%) | 2026 estimates | 2025 estimates |
|---|---|---|
All Country World Equity | 6.0 | 6.3 |
Non-U.S. developed markets equity | 5.7 | 6.0 |
U.S. equity | 6.1 | 6.3 |
Europe ex-UK equity | 5.5 | 5.7 |
Japan equity | 6.8 | 7.0 |
Emerging markets equity | 6.5 | 6.8 |
Source: Capital Group. The 2026 estimates as of December 31, 2025, with valuations as of September 30, 2025. The 2025 estimates as of December 31, 2024, with valuations as of September 30, 2024. The long-term expected returns are trailing geometric returns, which are compounded average rates of return over multiple periods.
Source: Capital Group. As of December 31, 2025, with valuations as of September 30, 2025. All assumptions are for market asset classes only and are reviewed at least annually. These figures represent the views of a small group of investment professionals based on their individual research and are approved by the Capital Market Assumptions Oversight Committee. They should not be interpreted as the view of Capital Group as a whole. As Capital Group employs The Capital System™, the views of other individual analysts and portfolio managers may differ from those presented here. They are provided for informational purposes only and are not intended to provide any assurance or promise of actual returns. They reflect long-term projections of asset class returns and are based on the respective benchmark indexes or other proxies and therefore do not include any outperformance gain or loss that may result from active portfolio management. Note that the actual results will be affected by any adjustments to the mix of asset classes. All market forecasts are subject to a wide margin of error.
As of December 31, 2025, with valuations as of September 30, 2025. All assumptions are for market asset classes only and are reviewed at least annually. These figures represent the views of a small group of investment professionals based on their individual research and are approved by the Capital Market Assumptions Oversight Committee. They should not be interpreted as the view of Capital Group as a whole. As Capital Group employs The Capital System™, the views of other individual analysts and portfolio managers may differ from those presented here. They are provided for informational purposes only and are not intended to provide any assurance or promise of actual returns. They reflect long-term projections of asset class returns and are based on the respective benchmark indexes or other proxies and therefore do not include any outperformance gain or loss that may result from active portfolio management. Note that the actual results will be affected by any adjustments to the mix of asset classes. All market forecasts are subject to a wide margin of error.
We use a building blocks approach for our equity return assumptions as defined by this formula.
Equity return | Earnings growth | |
|---|---|---|
-/+ | Dilution/accretion | |
+ | Dividend yield | |
+ | Valuation impact | |
+ | Currency impact | |
To arrive at our expected returns for each fixed income asset class, we compute its projected annual return for each year over the investment horizon, which we then geometrically compound before calculating the annualized return for the full period.
Bond return bulding blocks: | ||||
|---|---|---|---|---|
Bond return | Yield to worst | |||
+ | Valuation impact | |||
+ | Default losses | |||
+ | Currency impact | |||
Our currency projections are based around long-run currency fair values using both the bilateral and multilateral models. Fair values are determined by a combination of relative inflation and relative productivity differential estimates along with their historical trends. Both models are complementary and ensure that our foreign exchange (FX) projections are in line with the remainder of CMAs.
The expected nominal FX return calculations assume that currencies revert to fair values in the long run. The currency impact for each asset class is calculated based on the underlying currency weights in their respective benchmark proxies.
Each model uses one framework to value all currencies such that the estimates are globally consistent, coherent and easily interpretable. Both models assume that current FX spot rates will gradually converge to their implied fair values. We produce forecasts across 25 currency pairs versus the U.S. dollar. Output from both models is averaged.
Our assumptions about asset class volatilities and correlations are based largely on estimates from the historical return data. Estimating the correlation matrix using purely historical data is subject to estimation error and outliers in the sample data. As a result, we derive our estimates by transforming the sample matrix using a statistical method called shrinkage, which tends to pull the most extreme values toward the center, reducing estimation error.
Insights
Designed to meet a range of investment needs, whatever the market backdrop.
Equity
A range of equity strategies following a long-term approach to help investors achieve their goals.
Fixed income
Our distinctive approach has made us one of the world’s largest active Fixed Income managers.
Multi-asset
Dedicated to providing a smooth investment journey and robust risk-adjusted returns over the long term.
Emerging Markets
Seeking investment opportunities by taking a global view and through extensive on-the-ground research.
Yield to worst (YTW): A measure used to evaluate the lowest potential return a bond can provide an investor.
Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.
This analysis represents the views of a small group of investment professionals based on their individual research and are approved by the Capital Market Assumptions Oversight Committee. They should not be interpreted as the view of Capital Group as a whole. As Capital Group employs The Capital System, the views of other individual analysts and portfolio managers may differ from those presented here. They are provided for informational purposes only and are not intended to provide any assurance or promise of actual returns. They reflect long-term projections of asset class returns and are based on the respective benchmark indices, or other proxies, and therefore do not include any outperformance gain or loss that may result from active portfolio management. Note that the actual results will be affected by any adjustments to the mix of asset classes. All market forecasts are subject to a wide margin of error.
