Finding shelter amid market mayhem? This week’s chart shows why investors may need alternative sources of income and diversification.
February 28, 2020 | 1 minute read
After hitting an all-time high on February 19, equity markets have quickly turned, experiencing their sharpest sell-off since December 2018 and entering correction territory as the steady stream of news surrounding the spread of the COVID-19 virus has intensified global growth concerns.
Amid the equities sell-off, the Barclays Agg has continued to benefit from the 10-year Treasury yield’s decline – it reached an all-time low this week – with prices moving steadily higher in February and most of the past year.
Despite the stock and bond markets’ recent diverging paths, a traditional 60/40 portfolio – with a 60% allocation to equities (growth) and 40% to traditional bonds (income) – has provided little shelter for investors this month. In fact, $100,000 invested in the S&P 500 in February 2019 would produce very similar returns to that of a 60/40 portfolio.1
In other words, the meaningful price appreciation that traditional bonds experienced over the past year has not been enough to offset the equity markets’ significant losses.
Today’s historically low interest rate environment makes it difficult for investors to find competitive levels of income from their fixed income allocation. Looking forward, further interest rate declines would indicate an even deeper flight to quality and could likely coincide with additional equity market volatility and losses. Against this backdrop, investors may benefit by turning to alternative investments to meet both their income and portfolio diversification needs.
This week’s chart looks at return drivers for middle market buyout transactions, which have generated higher realized capital multiples than large cap and may favor middle market managers looking forward.
