This is an investment strategy as old as the hills. Allocate 60% of the portfolio to equities and the remaining 40% to bonds.
But with interest rates rising and bond prices falling, one investor says the old 60/40 maxim no longer reduces it.
Scott Ladner, CIO of Horizon Investments, instead advocates an 80/20 split, potentially calling the traditional 40% of bonds “dead money.”
“You want to be as equity as possible, but there can be restrictions on the amount of equity you can put in your portfolio,” Ladner told CNBC. “ETF Edge” on Wednesday.
“I just want to minimize that dead money allocation [in bonds and fixed income], But I need to get the same kind of recurrence return profile, the same kind of risk characteristics as the traditional 60/40, “he said. The allocation of passive bonds will be halved and the equity allocation will be replaced with some hedged equity type securities. “
Ladner emphasizes several ways investors can do this. The first is due to the following low volatility ETFs: First Trust Horizon Managed Volatility Domestic ETF (HUSV) and iShares MSCI USA Min Vol Factor ETF (USMV), both hold stocks with less price fluctuations than the market.
He also points out the use of derivatives through ETFs, such as: Global XS & P500 Covered Call ETF (XYLD), write call options to S & P 500, or Simplify Hedged Equity ETFs (HEQT), invest in put spread color.
“These are different ways to peel this risk-managed cat, and you have to invest 40% of our money in something that is probably not going to work for us and our clients. We will free us from this box for the next three to five years. “
These four ETFs (HUSV, USMV, XYLD, and HEQT) fell this month, S & P 500Almost 8% decrease.
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80/20 portfolio strategy could be new 60/40 in this rate environment
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