2022 was the worst first half for the 60/40 portfolio strategy since 1988, but the approach is poised for a comeback, according to a Morgan Stanley senior strategist who is quoted in a Bloomberg article that is cited by a piece in Financial Advisor IQ.
In the first 6 months of 2022, the Bloomberg index that tracks a portfolio with a 60/40 stock/bond split plummeted 17%. That downward spiral has been pushed by a bear market, fueled by raging inflation and interest rate hikes that are also causing bond price volatility. But according to Andrew Sheets of Morgan Stanley, the traditional 60/40 strategy is simply “resting” and waiting for its comeback. While equities and fixed income have become unquestionably entwined, they often don’t move in the same direction at the same time. And though fixed income isn’t as attractive as it’s been in the past, it still provides a diversified function.
Given that, the 60/40 portfolio is poised to generate better long-term returns over the course of the next decade in both the U.S. and Europe than it has for much of the last 10 years, Sheets told Bloomberg, as relayed in the Financial Advisor IQ article.