Our annual 10-year outlook for various asset classes

1. 9%
7%
65%
6%
3%
7%
2%
14%
11%
55%
6%
5%
7%
3%
19%
14%
44%
5%
7%
7%
4%
24%
18%
31%
5%
9%
8%
5%
30%
23%
16%
5%
11%
8%
7%
Private Equity
Hedge Funds
Real Estate
High Yield
U.S. Fixed Income
Global ex-U.S. Equity
Broad U.S. Equity
10-year projected return
10-year projected
standard deviation
4.50%
5.47% 5.00%
7.19%
5.50%
9.24%
6.00%
11.62%
6.50%
14.46%
10-Year Return and Risk Projections
2017 Capital Market Projections
Each year, Callan develops long-term capital market projections, detailing expected return, standard devia-
tion, and correlations for major asset classes. These projections are the cornerstone for strategic planning.
This charticle summarizes key figures from Callan’s 2017 capital market projections.
Projected Risk and Return of Different Asset Mixes
This exhibit uses Callan’s projections to create a range of efficient portfolios on a spectrum from conservative to aggressive.
Note: Charts may not sum to 100% die to rounding.
Source: Callan
<<< Conservative Aggressive >>>
Callan’s 10-Year Expectations
U.S. Equity 6.85%: Earnings growth is likely to
improve from recent levels as the economy grows
more quickly. Expansive fiscal policies could pro-
vide an additional tailwind. Dividend yields are ex-
pected to hold steady.
Global ex-U.S. Equity 7.00%: Improving economic
prospects in developed markets and continued high
growth in emerging markets should support profits,
but not to U.S. levels. Large dividend yields com-
pared to the U.S. result in similar total returns.
U.S. Fixed Income 3.00%: The bond market
should see yields rise in response to Fed tightening
in the next 3 years. Yields should increase across
maturities; short-term rates should grow more than
long-term, flattening the yield curve. Future higher
yields offset capital losses ex-
pected up front.
Real Estate 5.75%: Reflects
downward pressure on cap
rates, which declined about
0.25% in 2016.
Hedge Funds 5.05%: Returns
reflect the cross currents of
diminished equity prospects,
higher cash rates, and the
prospect of varied return oppor-
tunities in uncertain markets.
Projected Risk
(standard deviation)
Projected Return
(10-year geometric)
Inflation
Cash Equivalents
Private Equity
Hedge Funds
Real Estate
Commodities
Long Duration
High Yield
Emerging
Market Debt
TIPS
Non-U.S. Fixed
U.S. Fixed
Short Duration
Emerging
Market Equity
Developed
Non-U.S. Equity
Global
ex-U.S. Equity
Small/Mid Cap
Large Cap
Broad U.S. Equity
6.85%
18.25%
6.75%
17.40%
7.00%
22.60%
7.00%
21.00%
6.75%
19.70%
7.00%
2.60%
3.00%
3.00%
1.40%
9.20%
9.60%
10.35%
5.05%
5.75%
9.15%
16.35%
7.35%
32.90%
2.25%
0.90%
3.20%
10.90%
2.25%
1.50%
4.75%
18.30%
2.65%
4.50%
2.10%
3.75%
5.25%
27.45%
Source: Callan
0
5
10
15
20
-50%–
-40%
-40%–
-30%
-30%–
-20%
-20%–
-10%
-10%–
0%
0%–
10%
10%–
20%
20%–
30%
30%–
40%
40%–
50%
Over
50%
2008
2009
2013
2015
2011
2007
2014
2016
2012
2010
2006
89 Years of Stock Market Returns
NumberofYears
Moderate
-15%
-10%
-5%
0%
5%
10%
15%
20%
PPI (All Commodities)CPI (All Urban Consumers)
02 0397 98 99 00 01 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: Bureau of Labor Statistics
Source: Standard & Poor’s
Inflation Year-Over-Year

2. Broad U.S. Equity 1.000
Large Cap 1.000 1.000
Small/Mid Cap 0.950 0.950 1.000
Global ex-U.S. Equity 0.850 0.850 0.850 1.000
Dev. Non-U.S. Equity 0.850 0.850 0.800 1.000 1.000
Emerging Market Equity 0.850 0.850 0.850 0.950 0.850 1.000
Short Duration -0.250 -0.250 -0.250 -0.250 -0.250 -0.300 1.000
U.S. Fixed -0.100 -0.100 -0.150 -0.150 -0.100 -0.150 0.850 1.000
Non-U.S. Fixed 0.000 0.050 -0.100 0.000 0.050 -0.100 0.500 0.500 1.000
TIPS -0.050 -0.050 -0.100 -0.050 -0.050 -0.100 0.550 0.600 0.350 1.000
Emerging Market Debt 0.550 0.550 0.550 0.600 0.550 0.600 -0.050 0.100 0.000 0.200 1.000
High Yield 0.650 0.650 0.600 0.650 0.600 0.600 -0.150 0.000 0.100 0.050 0.600 1.000 0.200 0.100 0.050
Long Duration 0.150 0.150 0.100 0.100 0.100 0.050 0.750 0.950 0.550 0.550 0.150 0.200 1.000
Real Estate 0.150 0.150 0.150 0.150 0.150 0.150 -0.200 -0.100 0.050 0.100 0.200 0.100 -0.050 1.000
Private Equity 0.750 0.750 0.700 0.700 0.650 0.650 -0.150 -0.050 -0.050 0.000 0.450 0.550 0.200 0.200 1.000
Hedge Funds 0.800 0.800 0.750 0.750 0.750 0.750 -0.150 0.100 -0.100 0.100 0.550 0.550 0.300 0.200 0.600 1.000
Commodities 0.950 0.950 0.900 0.950 0.900 0.900 -0.250 -0.200 -0.050 -0.100 0.550 0.650 0.000 0.200 0.700 0.800 1.000
Cash Equivalents -0.050 -0.050 -0.100 -0.050 0.000 -0.100 0.300 0.100 -0.100 0.050 -0.050 -0.100 -0.050 0.050 -0.050 -0.050 0.000 1.000
Inflation 0.000 0.000 0.000 0.000 0.000 0.050 -0.200 -0.300 -0.150 0.200 0.000 0.050 -0.300 0.400 0.100 0.200 0.050 0.000 1.000
Broad Large Cap Sm/Mid
Cap
Global
ex-U.S.
Dev.
Non-U.S.
EM
Equity
Short
Duration
U.S.
Fixed
Non-U.S.
Fixed
TIPS EM
Debt
High
Yield
Long
Duration
Real
Estate
Private
Equity
Hedge
Funds
Comm. Cash
Equiv.
Inflation
Correlation Expectations (10 Years)
Then and Now: Comparing Historical Returns to Historical Projections
Annualized Returns
for periods ended 12/31/2016
10 Years 15 Years 25 Years
Broad U.S. Stock Market
Russell 3000 7.07% 7.11% 9.29%
Large Cap U.S. Stocks
S&P 500 6.95% 6.69% 9.15%
Small/Mid Cap U.S. Stocks
Russell 2500 7.69% 9.17% 10.73%
Non-U.S. Stock Markets
MSCI World ex USA 0.86% 5.45% 5.11%
MSCI Emerging Markets 1.84% 9.50% –
Fixed Income
Bloomberg Barclays Aggregate 4.34% 4.58% 5.63%
Bloomberg Barclays Glbl Agg ex-US 2.44% 4.96% 4.73%
Bloomberg Barclays Long G/C 6.85% 7.03% 7.58%
Real Estate
NCREIF* 7.22%* 8.93%* 8.32%*
Hedge Funds
Credit Suisse Hedge Fund* 4.21%* 5.81%* –
Private Equity
Cambridge Private Equity* 10.54%* 10.22%* 15.55%*
Commodities
Bloomberg Commodity -6.23% -0.11% -0.08%
Cash Market
90-Day T-Bill 0.80% 1.34% 2.71%
Inflation
CPI-U** 1.75% 2.04% 2.28%
Callan’s projections consist of three primary figures for each asset class: a mean rate
of return, a corresponding range defined by standard deviation, and the correlations to
other asset classes. These figures represent our best thinking for long-term expecta-
tions and establish a mid-point within a wider range of potential outcomes. We use the
projections to model portfolios for our clients.
Multiple elements of the capital markets influence the projections: returns relative
to inflation, equity valuations, risk premiums, GDP growth, and many other factors.
These projections incorporate advanced quantitative modeling as well as qualitative
feedback and the economic expertise of Callan’s consulting professionals. Our 2017
numbers reflect our optimism for the economy, for inflation, and for the capital markets.
About Callan
Founded in 1973, Callan Associates Inc. is one of the largest independently owned
investment consulting firms in the country. Headquartered in San Francisco, CA, the
firm provides research, education, decision support, and advice to a broad array of
institutional investors.
For more information, please contact your Callan consultant.
San Francisco | 800.227.3288
Atlanta | 800.522.9782
Chicago | 800.999.3536
Denver | 855.864.3377
New Jersey | 800.274.5878
www.callan.com
Published January 2017
© 2017 Callan Associates Inc.
This report is for informational purposes only and
should not be construed as legal or tax advice on
any matter. Any investment decision you make on
the basis of this report is your sole responsibility.
* Real estate and hedge fund data for periods ended 9/30/2016 rather than 12/31/2016 due to a reporting
lag. Private equity data is time-weighted return series for periods ended 06/30/2016.
** CPI-U data are measured as year-over-year change through 09/30/2016 due to a reporting lag.
Sources: Bloomberg Barclays, Bureau of Labor Statistics, Callan, Cambridge, Credit Suisse, MSCI,
NCREIF, Russell, and Standard & Poor’s.
About These Projections
Relationships between asset classes are as important as standard
deviations. In the past, particularly in stressed markets, correlations
between asset classes have risen.
Callan revisits and adjusts our correlation expectations annually.
Among the risky asset classes, correlations are high and will remain
high. Interestingly, stocks and bonds have exhibited tremendous
negative correlation over time. Other uncorrelated asset classes
have been commodities, TIPS, and to some extent many absolute
return strategies. We believe real estate will maintain a diversifica-
tion benefit, but it is harder to measure given the valuation process.
Source: Callan
0%
3%
6%
9%
12%
15%
97 99 01 03 05 07 09 11 13 15 17
Year
Projected10-YearReturn
Broad U.S. equity U.S. fixed income Real estate
Non-U.S. equity Non-U.S. fixed income Inflation (CPI-U)
Private equity Cash equivalents
How Callan’s 10-Year Return Projections Have Changed Since 1997
Source: Callan