Despite the uncertainty, near-term expected equity
returns seem reasonable when viewed along with muted
expected volatility. For example, Towers Watson’s most
recent capital market assumptions over the next year
expect U.S. equity return and volatility of 8.4% and
19.9%, respectively, versus respondent expectations of
6.9% and 15.2%, respectively. Using the 0.3% threemonth
government yield expectation for 2014, the
Sharpe Ratio is 0.41 with Towers Watson assumptions
versus 0.43 with survey expectations. Over time, the
survey responses suggest that volatility will trend
upward to levels closer to Towers Watson assumptions.