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The death of the 60/40 portfolio makes returns more difficult for funds

(Bloomberg) – Two of the world’s largest sovereign wealth funds say that investors should expect much lower returns in the future, partly because the typical balanced portfolio of 60/40 stocks and bonds no longer works as well in the current interest rate environment. Singapore’s GIC Pte. Ltd. According to the Australian Future Fund, global investors have relied on the bond market for decades to simultaneously increase returns while buffering their portfolios against stock market risks. Gone are those days when returns have largely risen. “Bonds saw this gift in hindsight,” with a 40-year rally that has strengthened all portfolios, said Sue Brake, chief investment officer of the Australian fund for A $ 218.3 billion ($ 168.4 billion) . “But that’s over,” she added, and said, “Replacing it is impossible – I don’t think there is any asset class that could replace it.” Falling bond yields could make the Model 60/40 portfolio real. After inflation, the return will be only 1% to 2% a year for the next decade, said Lim Chow Kiat, CEO of GIC. Compared to growth of 6% to 8% over the past 30 to 40 years, he said, “So this is not particularly exciting,” Lim said at the Singapore-Bloomberg Investment Management Association conference on Tuesday having to work harder to keep their portfolios to diversify and generate returns. She cited six main ways in which markets have changed with the pandemic, including increased regulatory interventions, higher inflation risks, additional performance drivers and more “fragile” markets. Funds have cried wolves for over a decade to warn of falling returns. Brake said just to see more gains. Still, investors should expect lower returns, she said. Global bonds have risen 382%, or about 5.4% a year, since 1991, based on the Bloomberg Barclays Global Aggregate Index: “We’re repeating the same message that returns will be much tougher in the future,” said Brake, whose Der Fund achieved an annual return of 9.2% over the past ten years. “You can’t hide in a corner and stop investing because we need to get our returns and I don’t think this is the environment in which we should be doing that.” At the end of last year, the company held around 73% in stocks and 25% in bonds. Lim also warned about too many government incentives and their inflation impact: “As a long-term investor, we have some concerns about the use of incentives,” he said. “We tend to like the use of capital and money to build long-term growth and structural factors rather than spending the money.” Investors also have to deal with geopolitical risk, said Lim, whose fund has delivered a real return of 2.7% on an annualized basis over the past 20 years. “This is a chronic problem,” Lim said. “It will stay with us for a long time, and it’s likely to have an occasional flare-up, just like any chronic illness. You have to manage it properly. “(Updates with the move of the Norwegian Fund in the ninth paragraph) For more articles like this, visit bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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