The New Allocation Blueprint

60/40 Portfolio

The 60/40 portfolio has long been the blueprint for a so-called “diversified” portfolio. A 60% allocation to public equity and a 40% allocation to bonds has been shown to provide some ballast and better potential risk-adjusted returns than a 100% public equity-only portfolio.

However, this has not always held true in all market environments. In fact, this may be the outdated diversified portfolio; the “new 60/40” investors are looking to more frequently now includes a mix of private assets?as well.

The table above shows the return and risk (standard deviation) outcomes of different allocation variations to private equity and private credit, scaling down public equity and bonds in the overall portfolio. Adding some private equity and private credit, we find there is an improvement in the long-term return, risk and Sharpe ratio when compared to the traditional 60/40 portfolio.

Catch up on Chart of the Week.

Definitions

Credit: This strategy focuses on providing debt capital.?

Private Equity: A broad term used to describe any fund that offers equity capital to private companies.??

Sharpe Ratio: The Sharpe Ratio is the average return earned in excess of the risk-free rate per unity of volatility or total risk.?