Following the release of Schroders Equity Lens for September 2026, Duncan Lamont, Head of Strategic Research provides a summary of it’s findings.
To view the full October 2026 edition of the Schroders Equity Lens, click here: Schroders Equity Lens – October 2026
Summary of Schroders Equity Lens for October 2026:
Even allowing for strong near-term earnings growth, the excess return for equities over bonds priced into markets has recently dropped sharply: higher bond yields set a higher bar (slides 6-17)
- Over 155 years of history, US equities have outperformed bonds by 4.8% a year
- But starting point matters: outcomes on a 10-year horizon varies substantially
- Relative valuations matter: equities outperform bonds by more when their “earnings yield” is high vs bond yields
- “Yield gap” is low right now, a negative signal about equities’ relative prospects over the medium to long term
- But there are 10yr periods when this metric is low yet equities still did well. What was behind these “surprises”?
- usually strong real EPS growth, valuations often declined
- Valuation metrics are still high but trailing and forward P/Es have partially de-rated, thanks to strong earnings trends (slides 35-37). Consensus earnings growth expectations are high
- This helps the equity return outlook but the recent rise in bond yields helps the bond return outlook by more
- Equities expected outperformance over bonds has declined
- Analyst coverage is lower outside the US, in EM vs DM, in small caps vs large caps, and the further out to the future you look – the active management opportunity is greater where coverage is lower
- Consensus “long-term” forecasts are from too small a sample to be credible
Narrow emerging market returns (slides 18-21)
- This year, nearly half of EM market cap has:
- returned more than 50%
- seen their 12-month forward EPS rise by more than 50%
- But these super-sized gains have been concentrated in a small number of large EM companies
- almost half by number have lost investors money
- fewer than 25% of EM stocks have outperformed this year
- MSCI EM has returned 24% YTD in USD terms, MSCI EM equal-weighted has returned only 6%
- The average company has fallen far short of the market
View the full October 2026 edition of the Schroders Equity Lens here: Schroders Equity Lens – October 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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