7 ETFs for a Lower Return Outlook

People should begin to lower expectations after years of fast and high growth. In the new low-growth environment ahead, exchange traded fund investors, though, may find higher returns in international stocks category, notably emerging market equities, along with private equity.

“Our five-year return assumptions have steadily moved lower since the financial crisis, amid weak global growth prospects, easy monetary policy and rising valuation,” Richard Turnill, BlackRock Inc.’s Global Chief Investment Strategist, said in a note.


Turnill argued that expected returns on U.S. stocks are lower from a  historical perspective due to high valuations. Alternatively, BlackRock sees more opportunities in non-U.S. equities, but investors will be exposed to greater risks if they seek out these areas of potentially higher returns.

“We see non-U.S. equities offering higher potential returns, along with higher risk. We have, however, downgraded our return assumptions for pan-European stocks due to the likely impact of a Brexit on UK and eurozone economic growth,” Turnill said. “To generate higher returns, investors must be ready to accept more market risk or more illiquidity risk (e.g. alternatives).”

Specifically, BlackRock’s five-year asset class return assumptions include an annualized return assumption of over 6% for emerging market equities and close to 6% returns on global ex-U.S. equities.

Related: Emerging Markets ETFs Could be in for Lengthy Rallies

Investors can also gain exposure to these broad market segments through ETF options. For instance, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) are the two largest emerging market ETFs by assets. Emerging market equities are finally bouncing back in 2016.

The Vanguard FTSE All-World ex-US (NYSEArca: VEU), iShares MSCI ACWI ex U.S. ETF (NasdaqGM: ACWX) and SPDR MSCI ACWI ex-US ETF (NYSEArca: CWI) focus on international markets sans U.S. exposure. Investors who have already included some emerging market exposure should be aware that these all-world ex-U.S. ETFs already have about 15% to 16% weights toward the emerging markets.