In Focus: Fixed income  

Reports of the 60:40 portfolio death are premature

Reports of the 60:40 portfolio death are premature
(Mathieu Stern/Unsplash)

The Grim Reaper should hold onto his horses for a while yet as the traditional 60:40 portfolio model is 'not dead', an investment adviser has claimed.

Quilter Cheviot's investment manager David Henry said despite rising inflation and geopolitical uncertainty, there was still value in portfolios set up to invest in approximately 60 per cent equities and 40 per cent fixed income.

In the latest FTAdviser CPD guide to fixed income, called 'What clients need to know about bonds', commentators discussed whether the traditional portfolio make-up of a 60:40 model still applied in this uncertain economic climate.

According to Collidr's investment director Colin Leggett, the collapse in bond prices earlier this year had put “another nail in the coffin” to the traditional, static 60/40 portfolio solution that many fund managers have developed for retail investors.

In the first six months of this year, the total outstanding value of UK corporate bonds fell by 13.3 per cent to £1.94trn from £2.24trn, a fall of £297.5bn.

This compared with a fall of 3 per cent for the FTSE100 over the same period, while gilts dropped by 14.8 per cent, the biggest drop since the 1980s.

But Henry said people should "not be so fast" to say the 60:40 model is dead.

He explained: "I have certainly had more emails recently from fund houses landing in my inbox decrying the death of the classic 60:40 equity/bond portfolio than I have in previous years.

"But if we look at the historical numbers, maybe the grim reaper should hold onto his horses."

A fuller analysis of this portfolio model can be found in FTAdviser's latest CPD guide, which serves as an introduction to bonds and looks at the role different types of bonds can play in a portfolio.

It also explains how interest rate movements affect bond prices and assesses the various risks associated with fixed income investment.

To read the guide, which carries an indicative 60 minutes' worth of CPD, click here. 

By the end of reading this CPD guide you should be able to:

  • Explain what a bond is and how it works
  • Summarise the effect that interest rate rises have on the bond market
  • List the various risk factors that affect bond investments
  • Outline why active bond investment strategies work in uncertain markets.

simoney.kyriakou@ft.com