Fresh questions raised over future of 60/40 portfolios

He said the answer was to move from nominal assets to real assets.

“You move from conventional assets, asset and portfolio construction to unconventional assets and portfolio construction. Those are just a few words. But these are really, really big, profound changes.”

However he warned most of the industry was not set up for this change.

“They're hamstrung with benchmarks. They just can't deviate from benchmarks. Or because they're not set up to own your unconventional assets, for a variety of reasons."

Brocklebank added there was a behavioural change that must happen which might also prove difficult in practice.

“[The 60/40 portfolio] is baked in very much in the heads of most financial advisers. 

“We know people don't like change, we know people anchor all the behavioural biases, so it is difficult for them to change. 

“But what we’re really saying is ‘okay, it's difficult to change, but why don't you just diversify some of your portfolio for starters.’”

However, in the face of repeated warnings about 60/40 portfolios, the performance of some of the traditional mainstays remains reasonable.

Many intermediaries still use Vanguard’s LifeStrategy portfolios as a one-stop solution for certain clients. Year to date, the Vanguard LifeStrategy 60 per cent Equity fund is broadly in line with the IA Mixed Investment 40-85 per cent Shares average.

David Storm, chief investment officer at RBC Wealth Management, said there has also been an expansion in the number of portfolio tools over the past few years to help meet investors’ different objectives.

“There’s a clear evolution towards portfolio risk allocation as opposed to asset allocation, which is a more comprehensive and flexible approach to managing the risk in portfolios,” he said. 

“With markets vulnerable to both a rates shock and a growth shock, simply allocating 40 per cent to bonds - or more correctly to rates - no longer offers the same level of protection to equities and is therefore less useful as a portfolio tool.”

To counter this, he said, there are many other instruments available, with the most obvious being the use of put options for downside protection. 

“However, just like fixed income rates exposure, it’s not something you want to hold at all times, rather puts are just one tool that can be used at different stages in the market cycle to help manage total portfolio risk.”

However, not everyone is sold on this new line of thinking.