Investor’s capital market expectations. Investor’s confidence in these capital market expectations. Long‐term returns of asset classes. The answer is Long-term returns. I suppose LT returns here mean the returns derived from the model, not the input. But how can “confidence” be an input? I’m perplexed …

There is a confidence parameter you need to input on each set of views, the lower your confidence in those views, the closer the final distribution is to the orignial implied.

All you need to know is that you put a confidence value (from 0% to 100%), and that then blends your views with the ones impled by the market portfolio, to give you the final weights of asset classes.

Confidence is a seperate parameter from adjusted returns.

The way I understand the model, you do not incorporate your statistically expected returns, but the absolute return, then there is a confidence value for that distribution that adjusts it depending on how confident you are in the predictions.

You overweight/underweight the Asset Classes with the higher/lower confidence sentiment.

For the Unconstrained BL you base your initial weight on an index or other.

For the BL you take the Expected Return on your base diversified portfolio (or other), you re-attribute each sector (or other) with his share of return and use those sectors return coupled with the confidence sentiment of the investors.

I also find the answer LT returns a bit strange as Expected Returns are involved in the calculation of the weight’s allocation for the BL.