•  DBS CIO Insights: 1Q23 – The Return of 60/40 presents an outlook on how clients can stay invested in the months ahead.

MUMBAI, 04th JANUARY 2023 (GPN): Very rarely in the history of financial markets do we see both risk assets (equities) and safe haven assets (government bonds) falling sharply, and in tandem.

2022 was a case in point, no thanks to the Fed pivoting sharply from the view that inflation is transitory, leading to the Fed responding aggressively by hiking rates from 0.25% at the start of 2022 to 4.5% today.

On the back of this huge and sudden shift in interest rates, the tried-and tested 60/40 portfolio construct was not spared.

With bond yields at above 5% today and equity valuations having mean reverted, we believe the window is now open to be engaged for the long term, in a multi-asset portfolio of equities and bonds.

What is critical is for investors to build resilient portfolios that comprise securities of high-quality companies that demonstrate traits of being income generators, growth enhancers, and risk diversifiers.

Income generators include bonds and dividend equities; growth is represented by I.D.E.A. companies representing Innovators, Disrupters, Enablers and Adapters; while risk diversifiers point to Gold and Private Assets.

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Key highlights:

Recession Risks to Slow Rate Trajectory: Expect a slower path of rate increases that will terminate at 5%, as the Fed weighs recession risks. Inflation to slow but not to the extent where the Fed will begin cutting rates.

Attractive Risk-Reward in 60/40: After an unusual year where both asset classes fell sharply and in tandem, this is an opportune time for balanced risk investors to engage in a portfolio comprising 60% equities and 40% bonds.

Upgrade Bonds to Overweight: The wide bond-equity yield gap calls for an upgrade to Overweight bonds. Investment Grade credit, with yields in excess of 5%, provides a blend of income and safety.

Stay with High Quality Equities: Expect the lower valuation of equity markets to mitigate impact from negative earnings growth. Stay with wide-moat companies that demonstrate agility to thrive in a fast-changing world. For the full report, please click here .Ends GPN SM