LONDON, Feb 10 (Reuters) – The traditional 60% stocks and 40% bonds portfolio has had the best start to the year since 1991, according to Bank of America, after one of the worst years on record.
The 60/40 portfolio is up 6.8% year-to-date, BofA said in its weekly Flow Shows report. A 40% stocks and 60% bonds portfolio is up 6.5%.
Investors have long favoured the 60/40 tactic, believing a fall in stocks should be cushioned by a rise in bonds, which have traditionally been seen as safe-haven assets.
Yet this relationship crumbled in 2022, as sky-high inflation and central bank rate hikes battered stocks and bonds alike. BofA said in October that the 60/40 was on track for its worst year in a century. After a rally at the end of the year, asset manager Vanguard estimated in December that it would be the worst performance since 2008.
However, both asset classes have climbed this year as investors have cheered a fall in global energy prices and signs that the rate hiking cycles might soon be over.
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The MSCI all-world stock index (.MIWD00000PUS) hit a seven-month high in early February and is up 6.6% this year. Vanguard’s total bond market ETF (BND.O) has risen just under 2%.
But trading has been choppy, with a very strong U.S. jobs report last week threatening the narrative that economies and inflation are cooling. The Vanguard bond ETF has fallen almost 1% over the last week.
Investors put $7.4 billion into bond funds while pulling $7.4 billion from stocks over the last week, according to BofA’s Flow Show report.
Bonds have seen inflows for the last six weeks, BofA said. The week before last, investors put $7.8 billion into bonds while also putting $16 billion into stocks.
“We believe bonds will have a tough decade but they will post positive returns in 2023,” BofA investment strategist Michael Hartnett said in the report.
“Quite simply everyone expects Fed to cut and politicians to panic via more stimulus checks, rebates, debt forgiveness, at the first blush of recession.”
Elsewhere, Chinese equities saw their largest weekly outflow since March 2022, at $3.1 billion.
Stock outflows from Europe resumed, at $0.7 billion. And tech stocks saw their first inflow for 11 weeks, at $1 billion.
Reporting by Harry Robertson; Editing by Amanda Cooper and Christina Fincher