The classic 60/40 portfolio, where investments are split 60% in stocks and 40% in bonds, is merely resting and isn't dead, Morgan Stanley's chief cross-asset strategist said, after the strategy had its deepest first-half dive since 1988.
The approach offers higher estimated long-term returns in the U.S. and Europe over the next decade than at most points over the last 10 years, Andrew Sheets wrote in a note dated Sunday.
After years of largely unbroken gains, the Bloomberg index that tracks the 60/40 portfolio tumbled 17% in the first six months of the year as rising inflation and interest rate hikes sent bond prices into a tailspin at the same time as stocks plunged into a bear market.
Sheets acknowledged that recent losses raised a question over whether the 60/40 strategy was broken in an era of tighter policy.
While previous large drawdowns "left investors wishing they had held more fixed income, this year has left investors wishing they didn't own anything," he said.
