BlackRock has warned that a classic 60/40 portfolio will serve investors poorly over the long term, despite a simultaneous rebound for equities and bonds this year. The “traditional investing approach” of a portfolio of 60 percent stocks and 40 percent fixed income has made a comeback this year from its biggest downturn in decades in 2022, according to a report from the BlackRock investment institute, the in-house research arm of the world’s biggest asset manager.
The strategy has been a cornerstone for many asset managers for more than 30 years. It is based on the inverse correlation between bonds and equities and the assumption that when the price of one rises the other falls. But it was unlikely to work in a world where big central banks were raising borrowing costs to curb rising prices, it said. Instead, investors should shift away from broad allocations to equities and bonds and buy a wider range of assets, including a substantial weighting in private markets.
“We don’t see the return of a joint stock-bond bull market,” the report said. “We think strategic allocations of five years and beyond built on these old assumptions do not reflect the new regime we’re in — one where major central banks are hiking interest rates into recession to try to bring inflation down.” Wei Li, global chief investment strategist at the BlackRock Investment Institute, said “being more nimble” was important in the current investing environment. Rising geopolitical tensions, turmoil in the banking sector and the risks posed by climate change would require more frequent adjustments to strategic asset allocation because of the need to respond to markets shocks and new information, said Li.
Source: Financial Times