THE popular 60/40 portfolio is not dead, and in fact is a significantly more compelling investment than cash over the coming decade, according to JPMorgan Asset Management.

The strategy of putting 60 per cent of assets in equities and 40 per cent in Treasuries is set to outperform cash by an annualised 4.1 percentage points, and inflation by 4.5 percentage points, over the next 10 years, strategists at the money manager said in a report looking ahead to the state of capital markets in 2024. That’s even with money-market funds paying upwards of 5 per cent these days, they noted.

The endorsement comes as the time-honoured portfolio has faced a growing number of critics following its worst performance since the global financial crisis last year. More recently, a Bloomberg gauge of the 60/40 model has slumped roughly 4 per cent since July as turmoil in Treasuries has fuelled synchronised sell-offs in stocks and bonds, sending investors scrambling for safer assets.

“Why should I extend out of cash?” is the No 1 question JPMorgan’s money managers get from clients, Monica Issar, global head of multi-asset and portfolio solutions at JP Morgan Global Wealth Management, said at a round-table on Tuesday (Oct 17). But with the cash rate peaking and expected to hover around 2 per cent to 2.5 per cent over the next five to 10 years, other assets will offer more compelling returns, she said.

Still, the long-term promise of the 60/40 portfolio is not stopping JPMorgan from recommending a slew of alternative investment options to juice returns, especially with stock-bond correlations no longer reliably negative.

By supplementing the traditional asset mix with a 25 per cent allocation to alternatives – including private equity, real estate and commercial mortgage loans – investors can boost their returns by an additional 0.6 per cent percentage points annually over the next decade, while also reducing risk.

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“The objection to alternatives is often their illiquidity, but we believe that liquidity remains an underutilised risk premium in many portfolios,” the strategists wrote in the report.

In US dollar terms, US$100 in cash will be worth just US$133 in 10 years, according to JPMorgan’s analysis. By comparison, the same amount invested in a model 60/40 portfolio will grow to US$197 over the span. Add alternatives to the mix and that increases to US$208.

“While high cash rates appear compelling, investors should remember that sitting in Treasury bills might mean collecting 5 per cent for limited risk today, but it misses out on the compounding of returns over the longer run,” the strategists wrote.

Ultimately, where clients should allocate their investments very much depends on their time horizon, according to David Kelly, JPMorgan Asset Management’s chief global market strategist.

“This is very much a world in transition,” he said. “We don’t expect to go back to low rates soon.” BLOOMBERG