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Decarbonisation, demographics and deglobalisation: what the “3Ds” mean for our investment strategy

Inflation may be falling in the near term, but longer-term shifts mean it is likely to remain higher than it was before the pandemic. This has prompted us to make some small but important changes to our assumptions and approach.



Mark Wilson
Portfolio Director
Grace Lavelle
Investment Strategy Director

Every year, we review the assumptions behind our investment strategies. This includes the expected return and risk of our portfolios, as well as our views on macroeconomic trends such as inflation and growth.

These assumptions are the core building blocks of our approach and help us select the mix of assets that will best meet your long-term objectives. Nobody knows in advance exactly how an asset class or inflation will perform in any given year. However, a robust set of assumptions based on long-term historical data and economic trends provide an invaluable starting point.

We work closely with Schroders’ economics team to determine these forecasts. This year, we have made some changes, driven by long-term trends that we describe as the “3Ds” – decarbonisation, demographics and deglobalisation. Their effects have already been very apparent in recent years.

Decarbonisation: Meeting emission reduction goals will have significant implications for economic growth and asset prices. The public and private sectors need to invest significantly in new equipment and technology, boosting aggregate demand and raising prices.

Demographics: Populations in developed markets are getting older and expectations about work and retirement are changing. These long-term shifts, which were accelerated by the pandemic, have resulted in labour shortages and have been a key driver of higher inflation. 

Deglobalisation: The pandemic and geopolitical tensions have prompted companies to shift their supply chains, often bringing production closer to home. This will be an additional source of inflationary pressure over the coming years. It may also be a factor behind less synchronised economic cycles around the world.

The 3Ds and inflation

As a wealth manager, a key part of our job is protecting the “real” value of your wealth. In practice, this means ensuring that your capital increases in value at a faster pace than inflation. To do this, we need to understand how inflation is likely to behave over the coming years.

Previously, we had assumed that inflation in developed market economies would remain close to central banks’ target of 2%. Looking ahead, due to the trends outlined above, we expect that inflation will, on average, be slightly higher.

Quantifying the impact of the 3Ds is difficult and we have chosen to focus our efforts on understanding the impact of climate change and decarbonisation. Schroders’ economics team has worked with an external consultancy, Oxford Economics, to explore the implications of different climate scenarios. Based on this work, we expect that annual inflation will, on average across major economic regions, be 0.5% higher than we were previously expecting. Central banks may formally continue to target an inflation rate of 2.0%, but we expect that it could turn out to be closer to 2.5%.  

What about returns?

Our work has also resulted in some minor adjustments to our return forecasts. Broadly speaking, expected returns across asset classes are little changed from our previous expectations. However, if inflation is higher in future, inflation-adjusted returns will be slightly lower.

We set out below our return forecasts for sterling-based clients. This reflects our expectation of average annual returns, before fees and other investment costs, over the next thirty years. This long time horizon is intended to capture multiple business cycles and is not a guide to performance in any given year. 

Expected Return

Global Equity


Government Bonds


Global Corporates






Real Estate 


Private Equity


Private Credit


Source: Schroders Economics Group, 2023.

Expected returns are forecasts and not a reliable indicator of future performance.

They reflect expected average performance over a 30-year time horizon and performance in any given year may be very different. Underlying assumptions and calculations available on request. All forecast performance figures are exclusive of commissions, fees and other charges which will have an effect on final performance figures.

There have been some small changes this year. While the energy transition will create new opportunities in many sectors, such as renewable energy and infrastructure, it also comes with economic headwinds – such as the losses associated with assets that no longer meet environmental standards (known as “stranded assets”). This results in a very minor reduction in our forecast return from equities.

We are also nudging down our expected return from cash in the UK and Eurozone, relative to the US. Returns on cash are ultimately a reflection of the long-term growth of an economy and the long-term average interest rate. We anticipate that lower growth in the UK and Europe, based on demographic trends as well as the impact of climate change, will result in slightly lower interest rates over the very long-term. Given the better growth outlook in the US, our forecasts for cash returns in USD are higher then the UK and Eurozone.

What does it mean for asset allocation?

We are making some adjustments to our asset allocation. To offset the impact of higher inflation and marginally lower returns from equities, we are slightly increasing the equity allocation within our higher risk profiles. For example, within our growth strategies, the target equity allocation will rise to 70%, from 65% previously. Within our equity risk strategies, the target equity allocation will rise to 100% from 90% previously. The latter also allows us to offer clients a strategy that consists solely of equities.  

We are also making small changes within fixed income. Previously, we had tilted bond exposure to the home market (e.g. the UK for sterling-based clients, the US for USD-based clients). However, with economies operating in a less synchronised manner in a deglobalised world, greater flexibility to invest in global bond markets seems prudent. This follows a similar shift we made in equities several years ago.

Bring it all together

Our expectation of slightly higher inflation will have an impact on our investment objectives across risk profiles. We set out what this means for our core risk categories below. These objectives reflect an average annualised return over the long-term (before fees) and reference the UK Consumer Price Index.

GBP Strategies

Current target

Former target










Equity Focus



Source: Cazenove Capital, 2023

Reassuringly, we still expect to generate returns ahead of inflation over the long term. However, as we move into a new economic regime, we expect that inflation will be slightly higher than in the past.

If you have any questions or would like to discuss these changes in more detail, please contact your portfolio manager or our investment team. We are always happy to hear from you and to share our views on the evolving investment landscape.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Mark Wilson
Portfolio Director
Grace Lavelle
Investment Strategy Director


Global economy
Economic views
Market views
Private Equity
Real Estate

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.