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Is it time to
adjus/t the
60 40
Examining the options for clients beyond traditional fixed income
by Mark Burgess
The traditional 60/40 portfolio served investors
well in 2020. Government bonds provided reliable ballast early in the year when equity markets tanked in response to the Covid-19 pandemic, and the equity portion surged thereafter in response to government stimulus and an anticipated economic rebound.
Many investors worry that performance can’t be repeated. Interest rates are expected to remain near zero for several years, which means replicating the benefit from government bonds would require nega- tive rates from the U.S. Federal Reserve and Bank of Canada.
“All of the backward numbers look great for fixed income,” Phil Mesman, head of fixed income with Picton Mahoney Asset Management in Toronto, told Advisor’s Edge last fall. “The typical advisor portfolio looks amazing but, at current yields and current dur- ation, it makes sense to be a little more creative.”
The 60/40 portfolio’s purpose hasn’t fallen out of fashion. Diversification and reduced volatility are as important as ever, with high equity valuations and the global economy digging its out way out of the Covid recession. But many experts are questioning the strategies to arrive at those ends.
“What used to represent a prudent way to reduce volatility has become a drag on portfolio returns,” stated a white paper from Purpose Investments pub- lished in late 2020. “Simply put, the risk and reward metrics of asset classes have shifted away from what they were when the 60/40 model was popularized.”
The traditional portfolio has reached “an inflection point,” the paper said, as investors won’t accept negative real returns for such a large portion of their portfolios.
Yet other options come with their own risks.

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