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What will the S & P 500 Total Return be over the coming years? NO ONE knows for certain but GMO thinks the numbers will not be too good based on valuations and historic trends
Over the past few years, equity markets have undergone a revolution. Both institutional and private investors alike have woken up to the fact that active managers, on the whole, do not outperform their benchmarks, and, therefore they do not deserve the high fees they charge.'
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This realization has led to an enormous shift away from active managers towards passive funds. Low-cost index trackers and ETFs following a dramatic theme attracted nearly $500 billion of assets during the first half of 2017 at the expense of active funds, which reported net withdrawals.
Professional and part-time investors are attracted to passive funds thanks to their low fees and performance. The S & P 500, for example, is up 173%, or 15% annualized over the past seven years. With such impressive returns on offer from a passive investment, putting extra effort into finding the best active funds or single stocks seems wasteful.
The S & P 500's returns are in a league of their own. Over the past seven years as the S & P 500 total return has achieved double-digit returns the MSCI EAFE (in USD terms), is up 71% (8% annualized), and the MSCI Emerging has gained only 30% (4% annualized). Based on this past performance, it's easy to justify an investment strategy entirely focused on a low-cost S & P 500 tracker.
However, according to the latest research paper from GMO's James Montier, while such an approach might seem to offer the best returns at the lowest price, investors should avoid the temptation to own nothing but the S & P 500 at all costs.
S & P 500 Total Return forecast
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