Alternatives ‘more essential than optional’ for 2024: JPMorgan Asset Management

In the push toward alternative assets, the energy transition could play a key role.

JPMorgan Asset Management has forecast that core infrastructure returns will improve in 2024, increasing to 6.8 percent on an annual basis from 6.3 percent in 2023.

The forecast was included in the firm’s 28th annual Long-Term Capital Market Assumptions report, an annual publication that provides investors with a 10-15 year outlook on risks and returns across different asset classes.

The report suggested that adding a 25 percent alternatives allocation to a portfolio could boost returns by 60 basis points, with a forecast annual return of 7 percent for a 60/40 US-dollar stock-bond portfolio over the next 10-15 years.

At a media briefing in Sydney to mark the report’s launch last week, JPMorgan head of real assets and alternatives investment strategy Pulkit Sharma told attendees that alternatives were more important than ever.

“The alternative asset classes are becoming more essential than optional in the broader 60/40 toolkit.”

Sharma said real assets were all the more crucial while inflation was running high.

“Inflation is going to be more and more sticky, so you need more diversifiers and inflation-sensitive asset classes. Real assets of infrastructure, forestry and transportation do exactly that – they diversify the equity risk and add inflation sensitivity to portfolios.”

The report’s authors expected core infrastructure to yield an annual return of 6.8 percent, slightly higher than last year’s estimate of 6.3 percent.

They identified the ongoing energy transition as a potential catalyst for opportunities in the infrastructure sector.

Government policies and incentives would likely support this transition and shape infrastructure investments over the coming years, they said.

Sharma added: “Infrastructure and transportation are steady asset classes, and they benefit from tailwinds off energy transition as well as fiscal policies toward transportation – the need for more movement of energy given the energy security geopolitical environment.”

The LTCMA authors suggested that real assets had shown their resilience in the face of inflation and interest rates climbing, when most other asset classes struggled.

Global market strategist Kerry Craig said JPMorgan AM’s forecast return of 7 percent for a traditional 60/40 portfolio should be viewed positively.

“It’s only slightly less than what we said last year [7.2 percent], which may be a little counterintuitive given the strong rally we’ve seen in the markets this year. We still think it’s quite an optimistic story for investors who are looking to build their wealth over a longer period.”