COTW: Worst Year for U.S. Core 60/40 in a Decade

October 23, 2018

The chart below can be downloaded here


With U.S. core bond benchmark yields at record lows and U.S. equity valuations on the higher side (highish on a forward price-to-earnings basis but near record high on a Shiller or price-to-sales basis), the prospect of lower expected returns is a theme we have been forced to incorporate into our asset allocation views this year. For instance, for the 10 years ending September 2018, a U.S. core 60/40 portfolio (60% S&P 500 and 40% BarCap Agg Bond) has delivered a return of 8.7% p.a. Using current yields and starting valuations and assuming modest mean reversion to long-term profit margins and valuation levels, returns will likely be less than half of that for the next 10 years: we estimate somewhere in the 3-4% range before inflation.


So what are investors to do? Our strategy has been twofold: (1) raise incremental amounts of liquidity through allocations to cash and high-quality short duration bonds and (2) allocate to niche or opportunistic managers that may be able to generate alpha relative to core allocations during episodes of volatility. Picture a barbell with one ends representing safe, boring and liquid assets and the other more esoteric and niche opportunities in less trafficked corners of the market. 


While the year is not over and anything can happen in the short-term, the performance of U.S. core markets for the year-to-date should not come as a surprise given the starting conditions of low yields and high valuations. Perhaps ironically, the very recent pick up in yields and global stock market weakness is a tremendously positive development for long-term investors with "dry-powder" to put to work.




SpringTide Partners, LLC is a Registered Investment Advisor with the state of Illinois and other states jurisdictions where required. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. All investing carries risk including risk of principal loss. All statements made on this website are opinions of SpringTide Partners, LLC and are subject to change. SpringTide Partners, LLC assumes no responsibility for the accuracy of the data included. Statements made on website shall not constitute investment advice.

Share on Twitter
Please reload

White PNG.png
SpringTide Partners
200 West Superior Street, Suite 200
Chicago, Illinois 60654
T  312 620 6362
  • White Twitter Icon
  • White LinkedIn Icon

Manager submissions? Submit info here

The information contained in SpringTide Partner's website is of a general nature and for informational purposes only and does not constitute financial, investment, tax or legal advice. These materials reflect the opinion of SpringTide Partners as of the date produced and are subject to change at any time without notice due to a variety of factors, including changing market conditions or tax laws.  Where data or analysis is presented that is prepared by third parties, such information will be cited. These sources have been deemed to be reliable by SpringTide but no guarantee can be made as to their accuracy.  Any links to third party websites are offered for use entirely at your own discretion. SpringTide Partners is separate and unaffiliated from any third parties listed herein and is not responsible for their products, services, policies or the content of their websites. All investments are subject to varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product referenced directly or indirectly in this website will be profitable, perform equally to any corresponding indicated historical performance levels, or be suitable for your portfolio. Past performance is not an indicator of future results.

© 2019 SpringTide Partners. All Rights Reserved.