As inflation remains elevated and interest rates stay high, BlackRock Inc. is forgoing the traditional 60/40 portfolio and turning to public and private investments instead, reports an article in Bloomberg. In a recent note, strategists from the research department of the firm advised dividing up the standard asset allocation and shifting “from broad allocations to public equities and bonds.”
After plummeting 17% last year in its steepest decline in more than 10 years, a Bloomberg US 60/40 portfolio has climbed back up 6.3% so far in 2023, according to the article. But BlackRock’s strategists believe that rally isn’t sustainable and the market isn’t going to return to the kind of stock boom that has boosted the traditional portfolio mix for many years. Instead, they pointed to select equity sectors like energy and healthcare as places to look for high-quality companies with healthy cash flows and supply chains that can withstand a recession. In taking “a new approach to building portfolios,” looking “across sectors and within private markets” will “help build more resilient portfolios in the new regime” of high interest rates and a possible inflation, the strategists wrote in the note.
Meanwhile, investors should start to reconsider their fixed-income allocations, because those returns are directly correlated to equity performance and therefore can’t be relied upon as they used to be in the past. Given their attractive yields, the BlackRock strategists prefer allocating to inflation-linked bonds and short-term debt, especially since they predict that interest rates will remain high for longer than expected. “[W]e don’t see the Fed coming to the rescue by cutting rates or a return to a historically low interest rate environment,” the strategists wrote in the note, Bloomberg cites.