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Billion-dollar asset managers are warning clients to take a more defensive stance on bonds in the face of rising equity prices and expectations that the Federal Reserve will not be able to cut interest rates to more.
A key model Vanguard released as part of the $10tn asset manager’s 2025 vision now requires financial advisors and certain wealthy individual investors to allocate 38 percent of their portfolios to stocks and the rest to cash. fixed input. That recommendation drops to 41 percent for 2024 and 50 percent for 2023, effectively flipping the popular 60/40 portfolio on its head.
“For that investor who is willing to take a little risk and deviate from their long-term strategy, we think the risk will make sense,” Todd Schlanger, senior investment strategist at Vanguard, said in an interview.
Vanguard’s latest statement was confirmed after the November election of president-elect Donald Trump and his Republican allies in Congress, which has led to the collapse of the stock market since then. While investors have been bullish about the possibilities Trump’s “Maganomics,”” economists have voiced pessimistic expectations fueled by concerns over inflation and interest rates.
Vanguard’s support for greater exposure to fixed income follows two roaring years US equity performance – a bull run that has made stocks look expensive to some. The S&P 500’s price-to-earnings ratio, a commonly used metric, has grown from 19.2 in September 2022 to about 30 as of this week.
Invesco’s solutions arm also advises on sustainable growth in income, as well as focusing on investments in security sectors such as heathcare, consumer goods and services.
Charles Shriver, a portfolio manager at T Rowe Price, said his team remains balanced but biased toward stocks, avoiding expensive growth companies in favor of “price zones.” so beautiful”.
“Stocks look very expensive historically,” said Will Smith, chief product officer at AllianceBernstein. “It’s going to be very difficult to have productivity gains in the next decade that are nearly as high as they were in the last decade.”
The tendency to over-select bonds was out of favor last year when the S&P 500 finished its second consecutive strong year, Schlanger acknowledged, noting that “the asset allocation is Vanguard’s “time variable” has a 10-year horizon in mind.
“You can have these moments of dysfunction,” he said. “But we would still take the example of doing what you have to do and trying to manage the risks that are out there, realizing that as US tariffs continue to rise in price, the opportunity to return the lower the amount and the higher the chance of going down.”
The S&P 500 enjoyed a dip after Trump’s November re-election victory, lifting it to a record high just below 6,100 on Dec. 6. But the markets were silenced since then, and 2024 ended up being the low mark for rates without “Santa Claus” to go. found.
“Options businesses are already losing momentum,” said Alessio de Longis, chief investment officer for Invesco Solutions.
“In short, our view is that growth is slowing down,” he added. “The evidence that inflation is slowing down very strongly is not there.”
