Who does not love a good come back? As the famous Gallagher brothers reunite for an Oasis reunion tour, a different Gallagher from the investment world says perhaps it is time for the classic 60:40 portfolio to make a comeback within the multi-asset universe.
Scott Gallagher, IFA and director of Rowley Turton, says: “I’m perhaps unusual in that I never wrote off the traditional 60:40 portfolio or multi-asset funds in general.
“Depending on the risk level, the average multi-asset fund, as covered by the UT Mixed 0-35 per cent Shares, UT Mixed 20-60 per cent Shares and UT Mixed 40-85 per cent Shares sectors has delivered returns of 6.84 per cent, 15.14 per cent and 27.50 per cent respectively.
“And despite the issues over the past few years of Covid, Ukraine and rapidly rising interest rates, the UT Mixed 40-85 per cent shares sector as an average still beat inflation (CPI) over that period. And the other two sectors still beat the average cash account (Moneyfacts 90 Days Notice 10k in GB index).
“The key concern about these funds was the risk of rising interest rates. However, now that that event has largely been seen, I see no reason that the traditional 60:40 portfolio or multi-asset funds wouldn’t have a place in many people’s portfolios.”
He adds multi-asset funds should be able to weather most storms without suffering losses that the fund holder cannot stomach.
Gallagher says: “Whilst purely equity funds might offer higher potential returns, most investors aren’t equipped to cope with the short-term downsides of pure equity funds and multi-asset funds might therefore be much more appropriate for the average investor.”
The lower inflation and rate cuts have impacted multi-asset portfolios, according to Gallagher, who says: “Regarding lower inflation and lower rates, in the short-term transaction, this is likely to be good for fixed interest returns. Albeit on a longer-term basis, this environment is likely to favour equities. An actively managed multi-asset fund would be expected to take advantage of opportunities like this and add value for their fund holders.
"And one of the advantages of actively managed multi-asset funds is that the investors, and their IFA, should not have to be too concerned about the current asset allocation, provided that it is within acceptable parameters for the client and their adviser.
“I think the future is bright for the traditional 60:40 portfolio as clients are generally somewhat more cautious than many IFAs would like to believe they are.”
In fact, the surge in inflation and rapid climb in interest rates has been a challenge to most asset classes, according to Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors.
He says: “Multi-asset strategies struggled in this environment, but the reset in yields means that the fixed income element of portfolios can now deliver better returns going forward and provide greater diversification in tricky moments.
