Average Return Methodology
The Average Return return mode will use actual historical average annual return of the investment and apply that as the expected return. Note that the Average Return mode negates the market assumptions (i.e. S&P/10-year US Treasury assumptions) completely; changes to those assumptions will not have any effect on investments set to use the Average Return return mode.
This return mode is best suited for investments that have unique (typically active) objectives where traditional beta adjustments or capture ratios understate the investment's realized risk/return characteristics. On a portfolio level, this functionality would allow an advisor to disregard the Market Assumptions inputs altogether. For example, an advisor who wants to view a portfolio through a static historical lens can toggle each investment in their portfolio to use the Average Return mode. However, advisors wishing to use the dynamic functionality provided by entering market outlooks in the data model will continue to be best served by using Advanced Risk Modeling.
NOTE: Some investments will have more historical price history than others based on their inception date. So, an equity investment with an inception of March 2009 will likely have a higher calculated average annual return than, say, an investment with an inception in January 2014.