After four long years of returns worse than cash, many investors in local equity and balanced funds are wondering if it is time to give up on such investments. And of late, investors have had to put up with emerging-market fears after the crisis in Turkey; wild dips in the rand; the JSE's largest share, Naspers, plummeting in value; gloomy economic forecasts; and threats about the sustainability of good returns from the world's largest share market, the US. But asset managers are cautioning investors against giving up and moving to cash as it could be exactly the wrong time to do so.Prudential expects shares on the JSE, after returning 4% a year for the three years to the end of June, to return 12.9% a year over the next three to five years, and global equities, which have delivered more than 16% a year over the past five years, to deliver 12.6% a year in the years ahead.The investment house is expecting 14.4% from local listed property, which for the three years to the end of June returned just 0.9% a year after large losses in the short term.Hamilton van Breda, the head of retail sales at Prudential Investment Managers, says despite the recent broadly disappointing returns, many asset classes are valued to deliver promising inflation-beating returns over the medium term.Talking to investors and advisers recently, Old Mutual Investment Group's head of macro solutions, Peter Brooke, said the group expects higher real returns for all local asset classes over the next three or four years due to a number of drivers, the biggest being changes in the country's political situation.He said it might not feel like it now as we are in the middle of a recession - the lagged effect of bad policies, low economic growth and low confidence - but the local economic situation is improving. If GDP improves by just half a percentage point, expected equity returns would increase by 0.5%, he said. Multi-asset balanced funds typically used by retirement savers target a return of inflation plus five percentage points, which for the three years to the end of June was 10.5% a year, Brooke said.But managers struggled to deliver this as the equity market, as measured by the shareholder weighted all share index returned 5.4%, the bond market delivered 7.8% and listed property 0.9%. The only major asset class used by these funds that had delivered above-inflation returns was global equities - returning 13.3% a year for the three years to end-June. But Brooke said though global equities had been the best asset class over the past few years, the US had had one of the most extended bull markets in history, and a long run of good news typically means bad news in the future. In its multi-asset funds the Old Mutual Investment Group had taken some of the profits it had made for investors from global equities and put these into cheaper local shares, he said. The investment house is expecting an after-inflation or real return of 5% from local equities as opposed to a 4.5% real return from global equities. The crisis in Turkey had also given the managers opportunities to buy local bonds at good yields (the annual interest divided by the current price), Brooke said. Old Mutual Investment Group expects a 3.5% real return from local bonds and 6% real from property. Sarah-Jane Alexander, co-manager of Coronation's Balanced Plus Fund, says Coronation is adding selected high-quality shares to its domestic equity holdings and has reduced its weighting in global equities because of the valuations in offshore markets and the weaker rand. At the end of July, the Balanced Plus Fund had 46% in local equities (up from about 34% three years ago) and 22% in offshore equities (down from about 24% three years ago), she says.Brian Munro, head of multi-assets at Cadiz Asset Management, which was recently bought by Warwick, says the real returns you can expect from South African equities are 5.2% - lower than the long-term average of 7%. This suggests the local market is still overvalued. However, opportunities are starting to present themselves for good stock-pickers, he says. Real returns on the S&P 500, a major index on the US market, are at 4.9%, Munro says. But with careful stock selection in defensive sectors, such as US healthcare and telecoms, and in cyclical growth sectors such as the oil services and US retail sector, you can expect a real return of 7% - more than the long-term average of 6.3%. Munro doesn't favour South African property at the moment as there is an oversupply of office space and malls, and the economy remains weak...