GMO’s Grantham Foresees ‘Dismal Consequences’ for Investors

  • High-priced assets mean low returns for years, letter says
  • Pension funds, endowments will struggle to meet their goals

Jeremy Grantham has some bad news for U.S. investors: they probably face a long period of sub-par returns.

The often bearish chief investment strategist at GMO in Boston said in a letter Tuesday that the stock market is not in a classic bubble and therefore is “unlikely to go bang.”

“We are likely to limp into the setting sun with very low returns," he wrote. "The consequences are dismal for investors.”

Grantham’s colleague, Ben Inker, co-head of asset allocation, makes a similar point in the same letter, arguing that almost all asset classes are priced at high valuations that seem to guarantee returns lower than history. “There are no good outcomes for investors,” he wrote.

Grantham, 78, is best known for his accurate prediction in 2000 that U.S. stocks would lose ground for the next decade.

The firm’s website has a seven-year forecast of annual inflation-adjusted returns for a variety of asset classes. For U.S. large-cap stocks, small-cap stocks and U.S. bonds, the numbers are all in negative territory. Emerging-market stocks are forecast to rise 3.7 percent a year.

Institutional investors, such as endowments and pension funds, that count on earning inflation-adjusted returns of 5 percent a year will be hard-pressed to meet those goals, Inker said.

GMO managed $88 billion as of Sept. 30, according to its website.

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