Reimagining the 60/40 Portfolio for Today’s Market
The traditional 60/40 portfolio dropped in value, indicating a high degree of correlation between stocks and bonds.
New York Life Investments’ Multi-Asset Solutions, Bloomberg, NBER, Macrobond, 12/31/22. Portfolio: 60% S&P 500 Index, 40% US Aggregate Bond Index. Correlation based on month changes over trailing 12 months, annual average. Past performance is no guarantee of future results. An investment cannot be made directly into an index.
This historical information is presented for informational and illustrative purposes only and may rely upon assumptions, conjecture, opinion, and hypothesis. No specific economic outcome or investment return is guaranteed. CCP assumes no liability for any loss or damage incurred from the use of any information sourced from any third party nor from any information presented in this document.
Source: Visual Capitalist, May 2023. “Reimagining the 60/40 Portfolio for Today’s Market.”
After decades of low and relatively stable rates, during 2022 and continuing through the beginning of 2023, we have experienced a period of increasing interest rates, inflation, and heightened geopolitical risks against a backdrop of slower real economic growth. These influences may continue for the short and mid-term.
Federal Reserve, 5/10/2023. Inflation is a year-over-year inflation rate based on the Consumer Price Index. The interest rate is based on the yield of 10-year Treasury Securities.
This historical information is presented for informational and illustrative purposes only and may rely upon assumptions, conjecture, opinion, and hypothesis. No specific economic outcome or investment return is guaranteed. CCP assumes no liability for any loss or damage incurred from the use of any information sourced from any third party nor from any information presented in this document.
Source: Visual Capitalist, May 2023. “Reimagining the 60/40 Portfolio for Today’s Market.”
Additionally, it’s appears that economic growth will be more volatile and uncertain in the short and mid-term. The probability of a U.S Recession within the next 12 months is high.
International Monetary Fund (IMF) Blog, “Global Economic Recovery Endures but the Road is getting Rocky,” 4/11/2023, and The Conference Board, 4/12/2023. The recession probably is calculated using the yield spread between the 10-year and the 2-year Treasury bond, financial conditions, the Federal Reserve’s balance sheet, and the variables s in the Leading Economic Index.
This historical information is presented for informational and illustrative purposes only and may rely upon assumptions, conjecture, opinion, and hypothesis. No specific economic outcome or investment return is guaranteed. CCP assumes no liability for any loss or damage incurred from the use of any information sourced from any third party nor from any information presented in this document.
Source: Visual Capitalist, May 2023. “Reimagining the 60/40 Portfolio for Today’s Market.”
Alts are a Mainstay
As uncertainty abounds in markets, there has been a reemerging emphasis on active over passive investment management. Ultra-high net worth investors have 45% of their assets in alternative investments, according to the 2023 UBS Global Family Office Report.
Source: Forbes, 2023. “Rich Families Making Major Changes To Asset Allocation, New Reports Find.”
Portfolio Diversification: Potential Outperformance, Reduced Risk
With current circumstances and historical performance, advisors and investors may benefit from a diversified approach that includes alternative investments (real estate, private equity, and hedge funds).
Bloomberg, Burgiss, HRFI, NCREIF, Standard & Poor’s, FactSet, J.P. Morgan Asset Management. Alts include hedge funds, real estate, and private equity, with each receiving an equal weight. Portfolios are rebalanced at the start of the year. Data is based on availability as of February 28, 2023. Returns are annualized
This historical information is presented for informational and illustrative purposes only and may rely upon assumptions, conjecture, opinion, and hypothesis. No specific economic outcome or investment return is guaranteed. CCP assumes no liability for any loss or damage incurred from the use of any information sourced from any third party nor from any information presented in this document.
Source: “Guide to Alternatives.” 1Q 2023, J.P Morgan Asset Management.
Hedge funds are said to provide diversification through non-correlated or negatively correlated returns. According to data compiled by JP Morgan Asset Management, hedge funds have provided downside protection during periods of market stress, circled below. During most of the periods of acute market stress over the last thirty years, hedge fund correlation to a 60/40 stock-bond portfolio has fallen to zero or below.
HFRI, Standard & Poor’s, Bloomberg, FactSet, J.P. Morgan Asset Management.
*60/40 portfolio is 60% S&P 500 and 40% Bloomberg U.S. Aggregate. Hedge funds are represented by HFRI Macro. Correlation is calculated on a 12-month rolling basis.
Data is based on availability as of February 28, 2023.
This historical information is presented for informational and illustrative purposes only and may rely upon assumptions, conjecture, opinion, and hypothesis. No specific economic outcome or investment return is guaranteed. CCP assumes no liability for any loss or damage incurred from the use of any information sourced from any third party nor from any information presented in this document.
Source: J.P.Morgan Asset Management, 2023. “Guide to Asset Management.”
Interestingly, Private Equity’s excess returns have been greatest when Public Equities deliver low returns.
Data chart uses rolling returns from a time period of 1986 - November 30, 2022.
Sources: Cambridge Associates, Pitchbook, KKR.
This historical information is presented for informational and illustrative purposes only and may rely upon assumptions, conjecture, opinion, and hypothesis. No specific economic outcome or investment return is guaranteed. CCP assumes no liability for any loss or damage incurred from the use of any information sourced from any third party nor from any information presented in this document.
Source: KKR, March 2023. “Regime Change: The Role of Private Equity in the ‘Traditional’ Portfolio.”
While alternative investments continue to grow in popularity, the marketplace remains fragmented, and opportunities are often difficult to access. Through our platform, advisors can explore institutional alternative investment opportunities such as hedge funds, private equity, venture capital, private credit, and private real estate.
To learn more about the funds listed on our platform:
For registered investment advisors only.