Morningstar Office uses 14 asset classes in the Efficient Frontier methodology and 12 asset classes in the goal planner (all those listed below except Commodities and Real Estate.)
In order to project the future returns of a portfolio, we need to specify for each asset class the expected mean, standard deviation, and the correlation among them.
We estimate these assumptions based on a combination of the current market information and the historical data going back to 1926 for US equities and 1970 for bonds. The table below lists the indices, arithmetic return, and standard deviation we use for each asset class:
|
Asset Class |
Return Data Series (Benchmark) |
Expected Return |
Standard Deviation |
|
U.S. Large-cap Growth Stocks |
Russell Top 200 Growth |
8.25% |
21.82% |
|
U.S. Large-cap Value Stocks |
Russell Top 200 Value |
9.60% |
17.47% |
|
U.S. Mid-cap Growth Stocks |
Russell Midcap Growth |
10.41% |
23.22% |
|
U.S. Mid-cap Value Stocks |
Russell Midcap Value |
12.48% |
19.17% |
|
U.S. Small-cap Growth Stocks |
Russell 2000 Growth |
9.98% |
27.62% |
|
U.S. Small-cap Value Stocks |
Russell 2000 Value |
13.29% |
22.46% |
|
Non-U.S. Dev Stocks |
MSCI EAFE |
10.02% |
20.62% |
|
Non-U.S. Emrg Stocks |
MMSCI Emerging Mkts |
14.35% |
29.65% |
|
U.S. Investment Grade Bonds |
Barclays US Agg Bond TR USD |
3.36% |
7.08% |
|
U.S. High-Yield Bonds |
Barclay US Corporate High Yield TR USD |
7.37% |
11.33% |
|
Non-U.S. Dev Bonds |
Citi WGBI NonUSD USD |
3.08% |
11.22% |
|
Cash |
Citi Treasurey Bill 3 Mon USD |
0.97% |
1.67% |
|
Commodities |
DJ UBS Commodity TR |
4.48% |
17.86% |
|
U.S. Real Estate |
FTSE NAREIT-Equity |
8.92% |
23.55% |