Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Canadian Pension Risk Strategies
    • 2023 Retirement Income
Breadcrumb
  1. Home
  2. INVESTING
August 03, 2020 07:49 AM

Investors rethink ‘60/40’ as low bond yields test portfolios

Bloomberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Gold ingots sit at the Uralelectromed Copper Refinery, operated by Ural Mining and Metallurgical Co., in Verkhnyaya Pyshma, Russia, on July 30, 2020.
    Bloomberg
    Some investors are turning to gold in search of better returns.

    The staple U.S. portfolio of 60% equities and 40% fixed income proved resilient this year, but strategists are now considering alternatives to government debt after some bond yields reached historic lows.

    Sanford C. Bernstein recommends taking more risk by favoring stocks and gold, and argues the negative correlation between equities and fixed income is likely to unwind. Morgan Stanley said corporate bonds may be the best alternative to sovereign notes for curbing portfolio volatility and providing a level of income.

    "I don't think bonds can provide the standard historical returns investors are used to," said Andrew Sheets, Morgan Stanley's chief of cross-asset strategy in London. "The starting yield is at a point where that type of return is just not possible. Investors are going to have to lower expectations of 60/40 portfolios, and will have to look elsewhere for what can be in the 40%."

    Blending stocks and bonds, a decades-old investment staple to balance risk and reward, is being tested by ultra-low yields. Five-year Treasury yields fell to a record after the Federal Reserve last week delivered a dovish message of support for the coronavirus-stricken U.S. economy.

    See more of P&I’s coverage of the coronavirus

    The S&P 500 index is up about 1.3% in 2020 after rallying sharply from March's pandemic-induced plunge. Governments and central banks have provided $11 trillion in stimulus and other support, including slashing borrowing costs and deploying unconventional policies to counter the impact of the health crisis.

    Investors don't have many other options to generate income aside from dividend stocks, with the gap between U.S. dividend yields and bond yields at the widest in more than six decades, said Inigo Fraser Jenkins, head of global quantitative strategy at Sanford C. Bernstein in London.

    "If asset prices are high maybe income is more important, but then how to find that income?" he said. "We think the end result is investors will have to take more risk."

    "You're going to have to think more creatively about asset allocation and potentially doing different things in your portfolio," said Michael Moran, senior pension strategist at Goldman Sachs Asset Management in New York. Alternative asset classes and private markets are a way for retirement funds to boost risk-adjusted returns, he said.

    For some analysts, the traditional 60/40 approach still has a role to play. J.P. Morgan Chase said in a note government bonds continue to have a negative correlation with equities, adding that an allocation such as four-fifths in stocks would be insufficient to hedge overall equity risk.

    Morgan Stanley's Mr. Sheets said cash has some virtues. "With 60% equities, 40% cash, you can get a lot of the same volatility reduction and liquidity benefits," he said. A portfolio with two-fifths in gold would likely look a lot more volatile, according to Mr. Sheets.

    A portfolio of 60% U.S. shares and 40% bonds is up 6% in 2020. A variation, which holds the same amount of stocks and replaces bonds entirely with cash instruments such as short-dated Treasury bills, has gained approximately 3.7%, according to calculations by Bloomberg. That compares with a total return of roughly 2.4% for the S&P 500 index.

    Investors will have to become more nimble because a "set it and forget it" balanced portfolio may not work as well, said Jason Brady, president at Thornburg Investment Management, a Santa Fe, N.M.-based asset manager overseeing $38 billion. "We're seeing a kaleidoscopic explosion of complexity," he said.

    Related Articles
    Pension funds sink billions into whole new world of risk
    Texas Muni reduces downside risk during pandemic, finding opportunities now
    Still boring after all these years, Idaho makes case for convention
    Recommended for You
    Charles Van Vleet
    Debt-ceiling apocalypse could offer opportunities as well, observers say
    ONLINE_190319844_AR_0_TVRKEENXBSQP.jpg
    Specter of inflation keeps hedging programs in place – report
    Kim Rosenkilde
    Singlife fine-tunes investment strategy post merger with Aviva Singapore
    Quest for Quality Amid Market Turmoil
    Sponsored Content: Quest for Quality Amid Market Turmoil

    Reader Poll

    May 1, 2023
     
    SEE MORE POLLS >
    Sponsored
    White Papers
    Counting on a Crisis: A Catalyst for Investment Innovation?
    A Strategic Allocator's Guide to Productivity and Profits
    Biodiversity: why investors should care
    Quantifying sustainability – the numbers, the data, and the people
    Valuing Banks: Hidden Losses Versus Assets
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Canadian Pension Risk Strategies
      • 2023 Retirement Income