The 60/40 portfolio remains one of investing’s most recognizable conventions, even where few institutional portfolios literally consist of 60 percent equities and 40 percent bonds. Its underlying logic remains compelling, but the investment universe around it has changed enormously. This HedgeNordic special report, “Rethinking the 60/40 Portfolio,” asks not simply whether 60/40 still works, but what its two components are supposed to achieve and whether investors now have better tools with which to build those outcomes. There is little consensus, which is perhaps reassuring.
Kjetil Houg, CEO of Folketrygdfondet, presents the enduring case for 60/40 in “Folketrygdfondet on the Enduring Case for 60/40,” arguing that higher bond yields, transparency, low costs and disciplined rebalancing continue to make the framework attractive. Steven Braun at Newfound Research and Return Stacked also resist calls to abandon it in “Reinforce, Don’t Replace: Carrying the 60/40 Through the Fragile Decade,” addressing its vulnerabilities during the “fragile decade” around retirement by using capital-efficient implementation to stack diversifying return streams on top of the traditional core.
Ben Buckler, Investment Specialist in Baillie Gifford’s Emerging Markets Client Team, meanwhile looks within the equity slice in “Emerging Markets Are Moving Beyond the Macro Cycle,” arguing that emerging markets are increasingly moving beyond the old macro story towards company-specific structural growth.
The 40 receives rather more surgery. Kari Vatanen, Head of Asset Allocation and Alternatives at Elo, starts by asking what fixed income is actually expected to do in “The 60/40 Isn’t Dead. But the 40 Is Changing,” considering how cash, private credit, infrastructure, hedge funds and alternative risk premia can share some of those responsibilities. Razvan Remsing, Chief Product Strategist at Aspect Capital, then makes the case for active and dynamic commodities as a complement to bonds in “Thinking Outside the 60/40 Box: How Active and Dynamic Commodities Can Complement Bonds,” particularly when inflation, supply shocks and geopolitics challenge traditional diversification.
Other contributors question the architecture more fundamentally. Jonas Thulin, Chief Investment Officer at AP3, argues in “The 60/40 Portfolio Has Run Its Course” that the traditional portfolio has reached the limits of its usefulness, favouring a Total Portfolio Approach and more dynamic allocation over fixed asset-class weights. Markus Aho of Varma similarly moves the discussion beyond individual buckets in “Practical Considerations for Embracing a Total Portfolio View,” explaining how a more holistic portfolio view affects not only allocation but mandates, organisation and even incentives.
Harold de Boer at Transtrend challenges another comfortable assumption in “60/40 – Don’t Count On It”: that the relationships which made 60/40 successful in the past can simply be counted on to persist, making the case instead for active trend following that adapts as markets and regimes change.
Diversification can also come from somewhere else entirely. Drawing on HedgeNordic’s ILS Day, Gustaf Hagerud of Finserve Nordic explores the distinction between statistical correlation and fundamentally different return drivers in “Diversification That Comes From Somewhere Else,” while contributors from Twelve Securis and RESS Capital take that discussion into catastrophe risk, private ILS and life settlements. Hurricanes and longevity have rather different causes than corporate earnings, interest rates or the business cycle, which is precisely the attraction.
Finally, Christoph Junge removes the rules altogether in “What Would a Totally Unconstrained Portfolio Look Like?” and asks what an unconstrained institutional portfolio might look like without the usual limitations imposed by liquidity requirements, regulation, governance and fee sensitivity.
There is deliberately no single answer in these pages. Rethinking the 60/40 Portfolio may mean defending the original recipe, changing the ingredients, reinforcing it with additional return streams, dynamically changing the weights or abandoning fixed asset-class buckets altogether. The question is no longer simply how to split the pie, but what we actually need each slice to do.
Please find the report here. Happy reading!
