CAPM Snapshot 1q18
The Capital Allocation Line is the line that links the risk-free asset with the market portfolio.
For EUR-based investors, we use Eurozone Government Bonds as a proxy for the risk-free asset, and Eurozone Large Cap Equities as a proxy for the market portfolio.
For 5 year, and Long-term, expected risk/return of these asset classes we use estimates from BlackRock Investment Institute.
As expected, the CAL is upwards sloping: the higher the expected risk, the higher the expected return.
For comparison, we superimpose on to those estimates, a snapshot of the historic 1 year and 3 year actual risk/return of these asset classes based on the performance of their respective ETFs.
This gives an informative snapshot over capital market performance and outlook for Euro-based investors.