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Chart of the week

60/40 portfolios soar in 2019. Are lower returns ahead?

Traditional stock and bond portfolios are soaring, but the return drivers seem to be running out of steam. Our chart explains what this could mean for investors in 2020.

December 13, 2019 | 1 minute read
  • A powerful combination of macro factors has come together to push stocks and bonds toward strong YTD total returns.
  • Stocks have risen more than 28% YTD, boosted by easy monetary policy combined with still-significant, though slowing, corporate stock buyback activity.1 Meanwhile, bonds have returned more than 8%, benefiting primarily from a peak-to-trough interest rate decline of approximately 120 bps.1
  • Against this backdrop, the traditional 60/40 portfolio – based on a 60% allocation to equities (growth) and 40% to traditional bonds (income) – has seen a 20% YTD return, stronger than any full calendar year since 2000.2
  • While 2019 has been a banner year for the 60/40, it could be a tough act to follow. Bond prices are unlikely to benefit from further interest rate declines next year as significant as this year’s. Furthermore, stocks could be hampered by a more challenging earnings picture going forward as the past three quarters have already seen annualized earnings declines.
  • Investors may be well served by preparing for heightened volatility and a more challenging return environment across traditional asset classes in 2020. Volatility could be fueled by uncertainty surrounding the upcoming presidential elections, a deeper corporate earnings slump coupled with high equity valuations, or any number of yet-unknown geopolitical risks.

  • S&P 500 and Bloomberg Barclays U.S. Aggregate Bond Index, as of December 12, 2019.

  • Bloomberg Finance, L.P., as of December 12, 2019.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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