The Markets January 31, 2012

Long-Term Outlook of Stock Market Likely Attractive

The long-run outlook for the global stock market is likely to be attractive despite a backdrop of elevated market volatility, below-average growth expectations, and near-0% short-term interest rates, according to Vanguard’s Long-Term Economic and Capital Markets Outlook.  
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As a result, balanced-portfolio returns over the next decade have a higher chance of matching their long-run averages than some may think, especially when those returns are adjusted for our outlook of future inflation. In short, the distribution of real returns on a balanced portfolio looks more normal than abnormal.

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Other highlights from Vanguard’s report – which outlines its outlook for U.S. economic growth, inflation, interest rates and returns for stocks and bonds in the decade ahead – are as follows:

•  The U.S. economic recovery is likely to continue to grow at a below-average 2%−3% pace, given the continuing concerns about housing, consumer debt and fiscal austerity in Europe and the U.S. Future U.S. economic growth should prove uneven, marked by periodic bouts of market volatility and economic slowdowns in 2012 and beyond.

•  An “inflation paradox” is likely to remain in place for much of the developed world, as the attempts of certain central banks to mitigate the deflationary forces of debt-reduction and fiscal austerity lead others to worry that markedly higher-than-expected inflation is almost certain in the future. Very likely, U.S. inflation should tend to be better behaved, averaging in the 2-3% range over the next several years. The report also discusses why the risk of a repeat of the high-inflationary period of the 1970s and early 1980s is estimated to be less than 10%.

•  Given the outlook for Federal Reserve policy, real (inflation-adjusted) interest rates are likely to remain negative for years. This outlook is unfortunate for savers, who, collectively, remain the “sacrificial lambs” of monetary policy.

•  The return outlook for broad bond portfolios is muted. The expected long-run median return of the broad taxable U.S. fixed income market most closely resembles the historical bond returns of the 1950s and 1960s. The diversification benefits of bonds are expected to persist despite the tendency for slightly higher interest rates over the next decade.

•  Contrary to some suggestions that the next decade warrants a radically new investment strategy, Vanguard maintains its long-held view that the principles of portfolio construction remain unchanged, given the expected risk-return trade-off among stocks and bonds.

To view the report in its entirety, visit https://institutional.vanguard.com/2012outlook.

 

Products January 31, 2012

Dalbar Introduces Fee Disclosure Certification Program

Dalbar introduced a Fee Disclosure Certification program for the evaluation of plan provider services.
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The Certification values the intangibles of services, provides an independent evaluation to plan sponsors and creates a critical role for advisers and third-party administrators (TPAs). Service providers with successful plans, high-quality service and active investment management are evaluated on these factors, not just the cost of the offering.

Plan sponsors receive certification that is evidence of the required evaluations, as well as suggestions for improving their plans. Plan sponsors are expected to engage their advisers to implement improvements under separate or existing arrangements.

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Advisers and TPAs receive free online training to support plan sponsors in their evaluations. Advisers and TPAs are expected to charge fees for this additional support since it goes beyond typical arrangements.

“The benefits of Fee Disclosure Certification creates a win, win, win,” said Kathleen Whalen, managing director at Dalbar. “Service providers win by quantifying the value of their services, plan sponsors win by simplifying compliance, and advisers/TPAs create a new service and revenue opportunity.”

Details of the Fee Disclosure Certification is available at www.ERISAFeeDisclosure.com. 

 

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