In 2022, the traditional negative correlation between equities and bonds broke down, with both asset classes falling simultaneously — an unusual occurrence. However, claims that this signaled the end of the 60/40 portfolio model are “exaggerated,” according to James Klempster, deputy head of the Liontrust multi-asset team.
He attributes the unusual positive correlation to a combination of factors, primarily inflation shocks triggered by post-Covid “revenge spending.” This was further exacerbated by Russia’s invasion of Ukraine, which drove energy prices higher and forced central banks to raise interest rates at levels not seen since the 1970s.
Despite this upheaval, Klempster maintains that the 60/40 model remains relevant and will continue to play a crucial role for investors. He points to the 2022 market reset, which has made bonds more attractive: “Bonds are currently providing a real return above inflation, meaning investors are being paid to wait while receiving a relatively attractive level of income.”
