Recovery to be led by large caps

At LeggMason Investors, we believe that in the next decade, returns from equities are highly unlikely to equal the 20% annual gains that investors achieved for much of the 1990s. According to the dividend discount economic model, the return from equities comes from the current dividend yield plus dividend growth. The current yield of the market is around 2.5%. Over the long term, dividends are likely to grow at the same rate as the economy. If we assume that real GDP grows at 2.5% a year, and inflation averages 2.5%, then we can expect a return of roughly 7.5% before trading c...