The 60-40 Stock-Bond Asset Mix Is Dead, BofA Warns

It’s one of the most time-honored investment beliefs—that individual investors should have a 60% equities-40% bond asset allocation. But Bank of America thinks that’s outmoded.

What’s the ideal new mix? More stocks and fewer bonds, according to a report by Jared Woodard and Derek Harris, BofA Merrill Lynch Global Research portfolio strategists. While they don’t specify a precise ratio, they argue that stocks have a better chance of generating the best returns in the future.

Their advice comes as bonds have shown a rally amid lower interest rates, which the Federal Reserve is fostering. Investment dollars are sluicing into bond mutual funds and out of equity ones.

Woodard and Harris contended that’s not a trend that will endure, adding that investors should be aware of the changing dynamic. “The future of asset allocation may look radically different from the recent past,” the pair wrote, “and it is time to start planning for what comes after the end of 60/40.”

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They said that bond market volatility has made risk-adjusted fixed-income returns worse than that of any other asset class. except for always-fluctuating commodities. But the very popularity of fixed income is creating a “bubble” that threatens to pop to the dismay of investors who thought bonds were safer, Woodard and Harris predicted.

“The core premise of every 60/40 portfolio is that bonds can hedge against risks to growth, and equities can hedge against inflation; their returns are negatively correlated,” the duo said. “But this assumption was only true over the past two decades and was mostly false over the prior 65 years.”

This negative correlation has dwindled recently, they said, noting that stocks and bonds now have tended to sell off together. The BofA strategists emphasized that 1,100 stocks world-wide have better yields than do bonds. They suggested that investors favor high-yielding stocks in less favored (hence cheaper) sectors such as industrials and financials.

People need to wise up and realize “there are good reasons to reconsider the role of bonds in your portfolio,” they said.

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Tags: Asset Allocation, Bank of America, Bonds, Stocks

Rockefeller Foundation CIO Donna Dean is retiring from her position and will leave the endowment near the end of the year. She will be succeeded by deputy CIO Chun Lai.

Dean joined the foundation as director of investments in 1995 and has served as CIO since 2001. During her tenure, the Rockefeller endowment nearly doubled in size to $4.44 billion, as of 2017, from $2.4 billion in (1995).

“It has been a dream come true to be able to use my investment skills on behalf of an organization that does such impactful work around the world,” Dean said in a statement. “Over the past 24 years I’ve had the opportunity to build and retain an incredible team of highly-skilled investors I am extremely proud to call my colleagues.”

Prior to joining the Rockefeller Foundation, Dean worked at Yale University, where she served as director of investments,

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and was responsible for real estate as well as oversight of the New Haven Initiative community investment program. From 1984 to 1987 she worked for CIGNA Investments in Hartford, where she managed real estate portfolios in the southeastern US. And from 1978 to 1984, Dean was with International Paper Company in New York, where she served as manager of trust investments and oversaw the company’s pension and employee benefit funds.

She currently serves on the board of trustees and chairs the investment committee of Queens University of Charlotte. She is also a member of the pension advisory committee of the New York Stock Exchange. In 2015 Dean received the inaugural CIO Pioneer Award from Chief Investment Officer magazine.

“Donna is a seasoned, successful investor and terrific colleague to us all,” Rockefeller Foundation President Rajiv Shah said in a statement. “Under her leadership, our investments office has flourished and she has met the challenge of growing the foundation’s endowment with extreme care and diligence.”

Lai joined the Rockefeller foundation in 1996and prior to becoming deputy CIO,managed the foundation’s hedge funds, distressed debt, real assets and fixed income portfolios. Before joining Rockefeller, Lai served as assistant investment officer for alternative investments at the State of Connecticut Retirement and Trust Funds from 1992 to 1996, and began his career as an aeronautics engineer in China. In his position as deputy CIO, Lai oversees investment research, asset allocation and portfolio management for the foundation’s endowment.

“Chun’s proven experience, track record and leadership make him a natural fit to take on the role of Chief Investment Officer,” said Shah. “He brings investment excellence combined with a deep knowledge of the foundation and its mission.”