CIO Insights 1Q23: The Return of 60/40
- In 2022, both asset classes fell sharply and in tandem; attractive risk-reward to be found in 60/40
- Recession risks to slow rate trajectory
- Wide bond-equity yield gap calls for upgrade to Overweight bonds
- IG credit, with yields in excess of 5%, provides blend of income and safety
- Stay with high quality equities; wide-moat companies to thrive in a fast-changing world
Dear valued clients,
Very rarely in the history of financial markets do we see both risk assets (equities) and safe haven assets (government bonds) falling sharply, and in tandem.
2022 was a case in point, no thanks to the Fed pivoting sharply from the view that inflation is transitory, leading to the Fed responding aggressively by hiking rates from 0.25% at the start of 2022 to 4.5% today.
On the back of this huge and sudden shift in interest rates, the tried-and tested 60/40 portfolio construct was not spared.
With bond yields at above 5% today and equity valuations having mean reverted, we believe the window is now open to be engaged for the long term, in a multi-asset portfolio of equities and bonds.
What is critical is for investors to build resilient portfolios that comprise securities of high-quality companies that demonstrate traits of being income generators, growth enhancers, and risk diversifiers.
Income generators include bonds and dividend equities; growth is represented by I.D.E.A. companies representing Innovators, Disrupters, Enablers and Adapters; while risk diversifiers point to Gold and Private Assets.
In this publication, we feature Cybersecurity, an essential component for the world undergoing digital transformation.
I wish you a steadfast year of investing even in the face of tremendous change in the world today.
Hou Wey Fook, CFA
Chief Investment Officer
Download the PDF to read the full 1Q23 CIO Insights report
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