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Annualized Return on '60/40' Portfolio is -34.4%, Worst in Past 100 Years - BofA

Published 2022-10-14, 08:58 a/m
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By Senad Karaahmetovic

Michael Hartnett, Chief Investment Strategist at Bank of America, took note of yesterday’s strong bounce in the U.S. equities after yet another red-hot CPI report.

Hartnett told the firm’s clients that the S&P 500, among others, rallied yesterday because “it was simply so oversold.” Hartnett reminds investors that 42 stocks within the S&P 500 are trading below their COVID 2020 lows.

More strikingly, Hartnett jokes that “investors need a hug” as the 2022 annualized return on the “60/40” portfolio is -34.4%, which he says is the worst in the past 100 years. Even the defensively oriented portfolio that consists of 25% cash, 25% stocks, 25% bonds, and 25% commodities is down -11.9%, the worst annual performance since 2008.

“Wall St disorder of 2022 reflects painful "regime change" as bullish deflationary era of peace, globalization, fiscal discipline, QE, zero rates, low taxes, inequality gives way to inflationary era of war, nationalism, fiscal panic, QT, high rates, high taxes, inclusion,” Hartnett said in a client note.

For 2023, Hartnett believes the most contrarian trades are long 60/40 portfolio and short the U.S. dollar.

As far as flows for the week to Wednesday are concerned, outflows from bonds were $9.8 billion while equities saw net inflows of $0.3 billion. Sector-wise, financials saw the 6th consecutive weekly outflow while infrastructure recorded the first outflow in 11 weeks.

Speaking about flows, Citi’s Chris Ma noted that the market rebound from last week (Monday and Tuesday) failed to hold.

“MSCI AC World went down by -5.3%, with US down by -5.6%. Global and European funds continued to see redemptions of US$3.7bn and US$0.7bn respectively, US funds however managed to attract US$5.2bn of inflow,” the strategist wrote in a note to clients.

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