2022 was a difficult year, but the fall in prices and change in valuation means that the expected real returns across all asset classes for a longer-term time horizon are more appealing.
The overvaluations at the end of 2021 have moved to numbers that are more reasonable. This is especially the case for fixed income and cash which have moved from negative to positive real returns. Fixed income has shown the largest switch from last year. These changes suggest that bonds should not be sold but potentially added to the portfolio and cash can be used as a positive returning asset. This is good news for many who have stuck with a balanced portfolio; however, it creates a challenge for alternative investments that have been positioning themselves as bond alternatives. Their absolute return and diversification benefit should be improved versus bonds.
The AQR work is very transparent and provides clear descriptions about how they derived their numbers. You may change their assumptions and get different answers but the framework very helpful.
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