Vanguard’s Investment Strategy Group

Our Investment Strategy Group serves as our lead in-house think tank. This team of economists, investment strategists and quantitative investment analysts produces relevant and rigorous insights on economics, markets, portfolio strategies and investor behaviour to improve investor outcomes and decision-making. The group also develops and oversees our proprietary modelling and forecasting tools.

Key credentials

A global team across disciplines

35 economists across 6 locations, including 7 CFAs and 13 PhDs.

Actionable insights and analysis

An in-house partner to our investment management teams, businesses and senior leadership team.

Rigorous primary research

In-depth primary research on a broad range of topics important to both investors and the industry.

 

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Vanguard economic and market update: Rate cuts loom

Vanguard’s latest economic and market update, including our outlook for growth, inflation and interest rates.

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Key points

  • In the US, interest rates remained unchanged within a range of 4.25%–4.5%.
  • In the euro area, we expect further interest rate cuts due to a weak economic growth outlook and benign inflation.
  • In the UK, there are signs of stagflation emerging, with low economic growth and rising inflation.
  • Investor sentiment in China is improving, bolstered by the emergence of AI start-up DeepSeek. 

Our latest asset-class return outlook

The Vanguard Capital Markets Model® (VCMM) is a sophisticated financial simulation engine that powers our investment outlook and asset allocation decisions. You can find the latest forecasts for equity and bond markets below.
 

A global, dynamic model that forecasts the drivers of long-term asset returns such as yield curves and equity market valuations.

Attribution models that attribute asset returns to the drivers.

A simulation engine to model the probability distribution of outcomes.

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Vanguard economic and market outlook for 2025: Beyond the landing

Joe Davis, Vanguard's Global Chief Economist, explains how supply-side factors have shaped our outlook for 2025 and what it means for investors.

Key points

Interest rates

We think interest rates will settle at a higher rate than in the 2010s. This sets the foundation for solid fixed income returns over the next 10 years.

US economic resilience

Surging labour supply and increased productivity drove US growth in 2024. But new policy risks – like trade tariffs – could cool that growth in 2025.

Rising market tension

We’re cautious on equities. The US market has momentum but high valuations will drag down long-term returns.

Practice management
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Investment knowledge

IMPORTANT: The projections or other information generated by the Vanguard Capital Markets Model® regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time. The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include US and international equity markets, several maturities of the US Treasury and corporate fixed income markets, international fixed income markets, US money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

The primary value of the VCMM is in its application to analysing potential client portfolios. VCMM asset-class forecasts—comprising distributions of expected returns, volatilities, and correlations—are key to the evaluation of potential downside risks, various risk–return trade-offs, and the diversification benefits of various asset classes. Although central tendencies are generated in any return distribution, Vanguard stresses that focusing on the full range of potential outcomes for the assets considered, such as the data presented in this paper, is the most effective way to use VCMM output.

The VCMM seeks to represent the uncertainty in the forecast by generating a wide range of potential outcomes. It is important to recognise that the VCMM does not impose “normality” on the return distributions, but rather is influenced by the so-called fat tails and skewness in the empirical distribution of modeled asset-class returns. Within the range of outcomes, individual experiences can be quite different, underscoring the varied nature of potential future paths. Indeed, this is a key reason why we approach asset-return outlooks in a distributional framework.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Important information

This is directed at professional investors and should not be distributed to, or relied upon by retail investors. 

The information contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

The information contained in this document is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

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