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Is It the End of the 60-40 Portfolio: Finding Uncorrelated Strategies

Released on Tuesday, October 13, 2020•MARKETS

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It is a challenging environment for investors. The classic 60/40 portfolio needs to be questioned when the 10-year US Treasury's price return asymmetry looks like this:

If 10-year interest rates go to zero: +7.5% in price

If 10-year interest rates go to 3%: -19% in price

With both bonds and equities expensive, Nancy Davis expects lower returns and larger and more frequent drawdowns for 60/40 portfolios. From current yield levels, bonds are unlikely to buffer equity losses as well as in the past making 60/40 portfolios riskier.

Nancy Davis

Quadratic Capital Management, LLC, Managing Partner and CIO

Nancy Davis is the founder and managing partner of Quadratic Capital Management, which she founded in 2013. Ms. Davis began her career at Goldman Sachs where she spent nearly 10 years, the last seven with the proprietary trading group where she rose to become the head of credit, derivatives, and OTC trading. She has been the recipient of numerous industry recognitions. Ms. Davis was named by Barron's as one of the "100 Most Influential Women in US Finance" and Institutional Investor called her a "Rising Star of Hedge Funds." The Hedge Fund Journal tapped her as one of "Tomorrow's Titans."