Regime shift: what it means for strategic asset allocation

In 2022 both equities and bonds fell in tandem, raising questions about the function of these assets within portfolios and their correlation. Should historic approaches to portfolio construction now be reconsidered?

Strong gains from both equities and bonds have propelled aggregate returns since the global financial crisis in 2009. But in 2022, equities and bonds both experienced woeful performance in the face of inflationary and growth concerns. For a standard “60/40” portfolio (60% global equity and 40% bonds) 2022 was the worst year on record (-14.4%) over the last 50 years, aside from the global financial crisis.

Asset owners and investors face a new regime in which bonds may no longer protect portfolios from the falls in equities. Various macroeconomic mega-trends are likely to have greater influence on future returns. There are understandable concerns about whether portfolio construction approaches that have worked for decades should be reconsidered.

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