Lukas
Strobl:
The
60-40
portfolio,
where
a
60%
equity
allocation
delivers
your
long-term
returns
and
a
40%
bond
allocation
protects
you
in
times
of
volatility,
was
an
investor
favorite
for
decades
but
experienced
a
bit
of
an
identity
crisis
in
2022,
when
both
of
these
asset
classes
were
smarting
during
Central
Bank’s
hiking
cycles.
After
that,
commentators
were
quick
to
pronounce
the
strategy
dead.
Well,
I’m
here
with
Morningstar
Manager
Research
Analyst,
Thomas
DeFauw.
Thomas,
first
of
all,
how
has
2023
been
for
60-40
investors?
Thomas
DeFauw:
Hey,
Lukas.
Well,
it’s
been
much
better.
The
60-40
portfolio
is
up
around
7%
year-to-date
at
the
end
of
last
month.
That’s
a
nice
rebound
from
the
steep
losses
it
suffered
last
year,
but
it’s
important
to
know
that
all
of
that
performance
this
year
came
from
stocks.
In
fact,
if
you
look
at
the
Bloomberg
Global
Aggregate
Index,
which
represents
the
bond
sleeve
here,
that
is
almost
down
1%
in
euros
and
up
a
modest
70
basis
points
in
U.S.
dollars.
If
you
remember,
at
the
start
of
the
year,
many
economists
were
predicting
a
recession
in
the
U.S.
That
didn’t
come
to
pass.
In
fact,
the
U.S.
economy
turned
out
to
be
much
more
resilient
than
expected,
and
the
end
of
the
rate
hike
cycle
has
sort
of
been
pushed
forward.
Since
the
start
of
the
year,
the
Fed
hiked
policy
rates
another
100
basis
points.
This
has
obviously
put
pressure
on
bond
prices.
For
example,
the
U.S.
10-year
yield
is
now
around
4.2%,
whereas
mid-January
it
was
still
trading
at
3.4%.
With
that,
the
talk
in
the
markets
has
shifted
to
rates
possibly
staying
high
for
longer.
Strobl:
Well,
that
sounds
like
more
bad
news
for
bonds.
Should
I
have
them
in
my
portfolio
at
all
then?
DeFauw:
Well,
I
think
bonds
have
an
important
role
in
the
portfolio.
It
probably
makes
more
sense
now
than
it
has
been
for
a
very
long
time
to
hold
them.
If
you
look
at
short-term
fixed
income
securities,
you
can
earn
quite
an
attractive
nominal
yield
without
taking
much
credit
or
duration
risk.
If
rates
should
go
up
a
little
further,
you
can
reinvest
those
proceeds.
So,
basically,
today
you’re
being
paid
to
wait.
Meanwhile,
if
you
believe
that
we’re
still
heading
for
a
recession
or
if
inflation
comes
down
and
central
banks
start
cutting
rates,
you
might
want
to
lock
returns
for
multiple
years
and
consider
bonds
with
longer
maturities.
That
is,
of
course,
the
trade-off
that
active
managers
have
to
make
on
a
daily
basis.
Strobl:
Well,
it
seems
not
even
economists
are
sure.
They’re
about
evenly
split
on
the
likelihood
of
a
U.S.
recession
in
the
next
year,
and
I’m
not
about
to
roll
those
dice.
So,
what
are
your
favorite
managed
funds
that
would
do
the
allocating
for
me?
DeFauw:
Yeah.
So,
we
cover
several
actively
managed
multi-asset
funds.
Today,
I’ll
discuss
two
that
use
the
60-40
portfolio
as
their
benchmark.
The
first
one
is
T.
Rowe
Price
Global
Allocation
strategy,
which
is
managed
by
Charles
Shriver
and
Toby
Thompson.
The
two
managers
are
backed
by
a
large
multi-asset
team
that
total
over
80
people,
and
it’s
this
team
that
makes
the
allocation
calls.
They
take
active
stance,
but
they
rarely
deviate
substantially
from
the
fund’s
neutral
weightings
of
60%
in
global
equities,
28%
in
fixed
income,
and
then
12%
in
cash
and
alternatives.
This
portfolio
has
around
15
underlying
strategies,
which
are
all
managed
by
various
teams
at
T.
Rowe
Price.
For
example,
on
the
equity
side,
it
allocates
to
regional
strategies,
including
U.S.
large
cap
value
and
U.S.
large
cap
growth.
And
within
the
fixed
income,
besides
investment-grade
securities,
there’s
also
room
for
high
yield
and
emerging
market
debt.
The
second
fund,
which
has
a
similar
name,
is
BlackRock’s
Global
Allocation.
This
is
also
a
strong
choice
for
investors
looking
for
a
global
diversified
portfolio.
The
appointment
of
CIO
Rick
Rieder
as
lead
manager
in
April
2019
has
brought
stability
after
a
series
of
manager
changes
and
analyst
turnover.
He
and
the
team
have
improved
the
process,
the
risk
management,
and
they
now
follow
a
more
top-down
approach.
In
light
of
these
enhancements,
we
decided
to
upgrade
the
process
rating
from
above
average
to
high.
Strobl:
Well,
thanks
for
these
picks,
Thomas.
That
sounds
like
the
news
of
the
death
of
60-40
have
been
greatly
exaggerated.
For
Morningstar,
I’m
Lukas
Strobl.
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