The standard 60/40 portfolio may have had one of its worst years so far in 2022, but a Wells Fargo analyst believes it’s due for a major comeback, according to news reports.
The Bloomberg index that tracks a portfolio with 60% in stocks and 40% in bonds lost 17% in the first half of this year, the worst drop since 1988, according to the news service.
But reports of the strategy’s death have been "greatly exaggerated," according to Wells Fargo analyst Douglas Beath, CNBC writes.
To be sure, “so far this year in capital markets is unusual," Beath wrote in a note on Tuesday, according to the news network. Typically, bonds are used as a hedge against stock market downturns, but this year both vehicles have dropped — all while inflation rose 9.1% annually in June, a 40-year high, CNBC writes.
But Beath believes the 60/40 strategy could soon see double-digit growth, according to the news network.
"In the rebound phase following calendar years of negative 60/40 performance, stocks outperformed bonds by a significant margin, averaging 19.2% versus 4.5% respectively," Beath wrote, according to CNBC.
Moreover, losses in both the stock and bond markets mean better valuations for diversified portfolios, and the 60/40 strategy has higher projected risk-adjusted returns, according to Beath, the news network writes.
Historical returns and improved valuations as a result of the downturn, combined with long-term capital market assumptions, mean “that the 60/40 portfolio is alive and well and that it should continue to serve as a solid foundation for long-term investors," he said, according to CNBC.
Beath’s comments come on the heels of a senior Morgan Stanley strategist saying that the 60/40 strategy is only “resting” and is set to perform better in the long term over the next decade than at most periods over the previous decade, at least in the U.S. and Europe.
The strategy has its detractors, however: Jeffrey Gundlach, chief executive officer of DoubleLine Capital, told CNBC ealier this year that he favors 25% in commodities, 25% toward cash, 25% in stocks and 25% long-term Treasury bonds.
And Michael Rosen, chief investment officer of Angeles Investments and Angeles Wealth, wrote back in September in an op-ed for the news network that the 60/40 strategy has “reached its expiration date.”
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