“60/40” portfolios are facing worst returns in 100 years: BofA

LONDON, Oct 14 (Reuters) – Investors with classic “60/40” portfolios are facing the worst returns this year for a century, BofA Global Research said in a note on Friday, noting that bond markets continue to see huge outflows.

“2022 (is) a simple tale of “inflation shock” causing “rates shock” which in turn threatening “recession shock” & “credit event”; inflation shock ain’t over,” BofA said in its weekly “Flows Show” report.

Soaring inflation, rising interest rates, war in Europe and an energy crunch have seen valuations plunge across asset classes in 2022.

The S&P 500 index of shares is down around 23% this year, having shed 15% since mid-August alone.

Hopes that inflation may be receding were dashed on Thursday after data showed U.S consumer prices increased faster than expected in September, reinforcing expectations that the Federal Reserve will deliver another 75-basis points interest rate hike next month.

Using data from EPFR, BofA said investors have sold bonds for eight consecutive weeks, while European equity funds have seen outflows for the 35th straight week.

So-called “60/40” portfolios typically have 60% of their holdings in stocks and the remaining 40% in fixed income.

BofA said annualised returns so far in 2022 on portfolios like these are the worst in the past 100 years, while those on “25/25/25/25” portfolios that hold equal portions of cash, commodities, stocks and bonds have dropped 11.9%, the worst sinced 2008.

Equity funds recorded USD 0.3 billion of inflows during the week to Wednesday while bonds saw massive outflows of USD 9.8 billion.

It was the sixth week in a row that investors sold financials, the first outflow from infrastructure in 11 weeks and the 18th week of outflows from bank loans, Bofa said.

Bofa’s bull & bear indicator remains at “max bearish” for the fourth consecutive week.

Anticipation that inflation will fall and the fact that in 2023 inflation will be expected rather than unanticipated is good news, Bofa said.

(Reporting by Lucy Raitano; Editing by Amanda Cooper)