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Asset managers overseeing trillions of dollars are warning clients to take a more defensive stance on bonds amid rising equity prices and the prospect of a sharp rate cut by the Federal Reserve.
The key Vanguard model, released as part of the $10tn asset manager’s 2025 vision, now requires financial advisers and certain wealthy investors to allocate 38 per cent of their portfolios to equities and the rest to fixed income. That recommendation drops to 41 percent for 2024 and 50 percent for 2023, the equivalent of flipping the popular 60/40 portfolio on its head.
“For that investor who wants to take a little active risk and get out of their long-term policy portfolio, we think de-risking makes sense,” Todd Schlanger, senior investment strategist at Vanguard, said in an interview.
Vanguard’s latest forecast was boosted after the November election of President Donald Trump and his Republican allies in Congress, leading to a stock market slump that has since fallen. When investors talk about prospects Trump’s “Maganomics,” Economists have put forward a gloomy forecast due to higher inflation and interest rate concerns.
Vanguard’s support for more fixed income exposure follows a two-year clamor. American equity Performance – A bull run that made stocks look too expensive for some. The S&P 500’s price-to-earnings ratio, a commonly used valuation metric, rose from around 19.2 in September 2022 to about 30 this week.
Invesco’s solutions arm also advises on increasing exposure to fixed income as well as focusing on equity holdings in defensive sectors such as healthcare, consumer staples and utilities.
Charles Shriver, a portfolio manager at T Rowe Price, said his team is biased toward equities, but avoids expensive growth companies in favor of “more attractively priced areas.”
“Equities are very expensive on a historical basis,” said Will Smith, senior product manager at AllianzBernstein. “It’s going to be very difficult to get higher returns in stocks over the next decade than in the previous decade.
As the S&P 500 finished its second consecutive strong year, the approach of choosing bonds over equities fell out of favor last year, Schlanger said, adding that Vanguard’s “time-varying asset allocation” model has a 10-year horizon in mind.
“You can have these periods of low performance,” he said. But we see the model as still doing what it needs to do and trying to manage the risks. adds”
The S&P 500 enjoyed a rebound after Trump’s decisive November victory, rising to an all-time high below 6,100 on December 6. But since then, markets have been muted, and 2024 has declined in equity with no “Santa Claus” parade. to find .
Alessio de Longos, Head of Investments at Invesco Solutions, said: “The exchange is already disappearing.”
“In the short term, our view is that growth is slowing down,” he said. “There is absolutely no evidence that inflation is weakening significantly.”
