Speaker spotlight with Miles Sampson, Head of Asset Allocation Research at Franklin Templeton.

Each year, Franklin Templeton Investment Solutions (FTIS) develops its Capital Market Expectations (CMEs) to help investors navigate an evolving global investment landscape. These forward-looking assumptions are designed to support strategic asset allocation decisions by offering a disciplined view of expected returns, risk, and correlations across asset classes over a long-term horizon.

The CME process begins with a comprehensive review of the fundamental drivers of capital markets. This includes current valuation measures, historical risk premia, and expectations for economic growth and inflation. The models used are regularly updated and assessed to ensure their ongoing relevance, combining rigorous quantitative analysis with seasoned practitioner judgment. Importantly, these models are grounded in first-principle economic relationships rather than relying solely on historical averages, making them particularly suited to periods of structural change and macroeconomic uncertainty.

An important aspect of Franklin Templeton’s approach is the explicit incorporation of expected volatility and correlations into every capital market forecast. By blending long-term structural inputs with shorter-term cyclical dynamics, the framework seeks to avoid excessive recency bias while still allowing for tactical flexibility when market conditions shift. This balanced methodology provides a more resilient foundation for portfolio construction across different market regimes.

The CMEs are expressed as annualized, geometric-mean return expectations over a 10-year horizon. This time frame captures the average length of a US business cycle and aligns with the strategic planning horizons of many institutional investors. Alongside return expectations, the framework also considers risk characteristics, enabling allocators to better assess trade-offs and diversification benefits across asset classes. Looking ahead, Franklin Templeton expects relatively lower portfolio returns over the next decade. Elevated equity valuations, high corporate profit margins, and narrow credit spreads suggest more modest forward returns compared with historical norms. In this environment, core fixed income is expected to play a central role in portfolios, supported by positive real yields and higher term premia, even as fiscal challenges persist in parts of the developed world.

Equities remain an essential component of long-term portfolios, offering exposure to global productivity growth and innovation, as well as partial inflation protection through nominal revenue growth and pricing power in select sectors. However, investors may benefit from a measured rebalancing toward international developed markets and select emerging economies, where valuations are more attractive and earnings growth prospects remain compelling.

Private markets are also expected to grow in importance as sources of diversification and return enhancement. Over long horizons, top-tier private equity and private credit managers have demonstrated the potential to outperform public market benchmarks, helping offset lower expected returns elsewhere. Real assets may further support portfolios, particularly if inflation pressures persist. Finally, cash continues to serve as a liquidity buffer, but as yield curves re-steepen, extending duration is expected to outperform cash over the long term. Franklin Templeton also anticipates a modest depreciation of the US dollar over time, reflecting its strong starting valuation and a gradual narrowing of relative growth and interest-rate advantages.

Together, these Capital Market Expectations provide a structured, forward-looking framework to help investors position portfolios thoughtfully for the decade ahead.

Don't miss Miles on Day 2 at Future Alpha 2026 - 2:00PM Panel Discussion: Macro outlook & quant opportunities in multi-asset investing and 3:20PM Super Panel: Macro in Motion: Portfolio strategy, asset correlations, and cross-market dynamics.

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