CAMERA: Our capital market assumptions update

In this quarter's update, we zoom out from the recent market noise and view our longer-term expectations for UK assets.

Earlier this year we introduced CAMERA, our capital market assumptions framework. CAMERA combines two sources of return expectations – those from an equilibrium model that is primarily risk-based, and those from a model that is primarily valuation-based – to form a sensible blend of expected returns over a range of time horizons.

The framework is based on the premise that in the long run, expected returns should converge to some equilibrium level, while over shorter horizons we may expect some deviation from equilibrium assumptions as a function of market valuations.

With the UK general election now behind us, and with the Bank of England taking a ‘finely balanced’ decision not to cut in June, it is perhaps interesting to zoom out from recent noise and view our longer-term expectations for UK assets.