January 11, 2022 | Vanguard Perspective

Global equity outlook and implications for client portfolios

As policymakers look to strike a better balance in the years ahead, we believe that a balanced portfolio approach for a more balanced environment is one that will best serve your clients.

Based on our economic and market outlook for 2022 and beyond, we offer a synopsis of our equity projections broken down into separate asset class categories. We then outline how our funds and ETFs can help you position client portfolios over the long term, while also considering the current market environment.

IMPORTANT: The projections and 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. The forecast corresponds to the distribution of 10,000 simulations of the Vanguard Capital Markets Model® for 10-year annualized nominal returns in USD for asset classes highlighted here. Median volatility is the 50th percentile of an asset class's distribution of annualized standard deviation of returns. Asset class returns do not take into account management fees and expenses, nor do they reflect the effect of taxes. Returns do reflect reinvestment of dividends and capital gains. Indexes are unmanaged; therefore, direct investment is not possible.

Source: Vanguard calculations, as of September 30, 2021.

Overall equity market


  • Our long-term outlook for global equities is guarded for 2022, amid a backdrop of low bond yields, reduced policy support, and stretched valuations despite solid fundamentals.
  • The global equity risk premium is still forecast to be positive but lower than that of 2021.


  • Despite muted expectations maintaining equity exposure is key to take advantage of the risk premium equites can offer.
  • Global equity returns are expected to be in the range of 2 to 4 percentage points over that of bond returns.1

Vanguard active strategy: Global Equity VHGEX

Vanguard ETF: Total World Stock VT



  • Attractive valuations and recent U.S. equity outperformance have only strengthened our conviction in international equities pushing our expectations higher.
  • Growth headwinds in China should intensify amid transition toward a new policy paradigm.
  • Euro area accommodative monetary policy expected to continue despite inflationary pressures.


  • Despite the global divergence in health and economic outcomes, we believe that there is a high probability of international equities outperforming U.S. equities over the next decade.
  • We estimate that the annualized return will range from 5.2% to 7.2%, compared with an annualized 2.3%–4.3% range for U.S. equities over the next ten years.1

Vanguard active strategy: International Growth VWILX, International Core Stock VZICX, International Value VTRIX

Vanguard ETF: Total International Stock VXUS, FTSE Developed Markets VEA

Emerging markets


  • We expect emerging markets recovery to face some continued hurdles in 2022, leading to a sluggish projected 5.5% growth.
  • We believe emerging markets in Asia may face continued virus vulnerability in 2022.
  • While we believe emerging markets equities are overvalued, we still expect higher returns than U.S. equities, with added diversification benefits.


  • Emerging markets offer the opportunity to access countries with higher long-term growth potential.
  • We believe a correction to fair value suggests that emerging-market returns should be in the 4.2% to 6.2% range over the next decade.1

Vanguard active strategy: Emerging Markets Select Stock VMMSX

Vanguard ETF: FTSE Emerging Markets VWO



  • We continue to have a constructive view on value stocks despite their recent strong performance relative to growth stocks.
  • We expect value to outperform growth by as much as the historical equity risk premium over the next decade, mostly as a result of a decay in the overvaluation of growth stocks.


  • We expect that U.S. value stocks (3.1%–5.1%) will outperform U.S. growth stocks (–0.9%–1.1%) over the next decade.1
  • Despite a rally in small-cap and value in 2021, we believe there is continued upside in value stocks.

Vanguard active strategy: Selected Value VASVX, Windsor VWNEX, Windsor II VWNAX

Vanguard ETF: Value VTV, Russell 1000 Value VONV, U.S. Value Factor VFVA



  • We expect that downside risks and volatility will likely stay elevated.


  • We expect that investors will need to be prepared for increased portfolio volatility resulting from continued global economic uncertainty.

Vanguard active strategy: Global Minimum Volatility VMNVX

Vanguard ETF: U.S. Minimum Volatility VFMV

All ticker references are to the mutual funds' Admiral Shares, except for Vanguard Global Equity, International Value, Emerging Markets Select Stock, and Selected Value Funds, which are the funds' Investor Shares.


1 Please note that figures are based on a 1.0-point range around the 50th percentile for equity return outcomes.



  • For more information about Vanguard funds or Vanguard ETFs, obtain a prospectus (or a summary prospectus, if available) or call 800-523-1036 to request one. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
  • Vanguard ETF Shares are not redeemable with the issuing fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
  • All investing is subject to risk, including the possible loss of the money you invest. Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets. Diversification does not ensure a profit or protect against a loss.
  • Prices of mid- and small-cap stocks often fluctuate more than those of large-company stocks.
  • The Factor Funds are subject to investment style risk, which is the chance that returns from the types of stocks in which a Factor Fund invests will trail returns from U.S. stock markets. The Factor Funds are also subject to manager risk, which is the chance that poor security selection will cause a Factor Fund to underperform its relevant benchmark or other funds with a similar investment objective, and sector risk, which is the chance that significant problems will affect a particular sector in which a Factor Fund invests, or that returns from that sector will trail returns from the overall stock market.
  • IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from the VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as of September 30, 2021. Results from the model may 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 U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. 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.