Although valuations directly impact returns over the long term, not over the short term, elevated valuations today mean more modest expected returns in the future compared to those of the last decade. Investors should either accept the likelihood of lower returns or start adapting their portfolios to the new environment of modest market returns. The way to enhance performance when market returns are more muted is to use skilled active management across bottom-up active security selection, top-down dynamic asset allocation and creatively adding new sources of returns and techniques to mitigate risks.
