ETF Prime: The Possible Demise of the 60/40 Portfolio

Today’s prevailing narrative is that the traditional 60/40 equity/bond portfolio is dead—specifically the “40” portion, since current yields for bonds are so low. High inflation prints and bonds with negative real yields have bolstered this narrative, as well as the possibility of a continued rise in inflation and interest rates. Going by the data, though Hendrickson has his own opinions on what’s occurring.

In a broader sense, Hendrickson acknowledges that one of the bigger challenges advisors face is in their fixed income allocation. Many advisors, he says, are opting to reduce that allocation in favor of equities—sometimes drastically so.

He brings up a recent polling question asked of hundreds of advisors: “Where are you moving your traditional 60/40 portfolio allocation?” Looking at the results, 20% moved to the 60/40, 48% moved to a 70/30, 21% moved to a 80/20, and 11% moved to a 90/10. Meaning, 79% of the advisors who answered that question are increasing their equity allocation.

“As we move away from this generational challenge that we have as it relates to wealth management,” said Hendrickson, it’s a signal of being more aggressive toward stocks.

Another polling question asked how advisors are primarily finding income now. According to the results, 12.2% used bonds, 12.2% used calls, and 75% used dividends. So, as far as solutions, advisors are looking at equities, specifically dividend-paying equities.

One more poll Hendrickson offered results for: “Given today’s market, what is the key area you’re planning to change in your client’s portfolio?” 41% said they were de-risking portfolios. Another 30% said they were finding income. 14% said positioning for growth, and 14% said they plan to stay as is. Hendrickson finds these results fascinating, given how it challenges the traditional way in which the risk-return spectrum is thought of by going towards equities while de-risking.

Later in the episode, Geraci speaks with Cullen Roche, founder and Chief Investment Officer of Discipline Funds, about the brand-new Discipline Fund ETF (DSCF) and why Roche felt it was time to enter the ETF space. From Geraci’s perspective, DSCF would usually sit in the asset allocation fund category, a difficult area for issuers to find success. However, given how Roche approaches this fund and what he’s already established in the industry, Geraci is confident in DSCF’s chances to take off.

Finally, there’s time spent with Sean O’Hara, President of Pacer ETFs, a firm that has continually and quietly built up its ETF business. Pacer is now approaching $9 billion in total assets under management. Geraci spends the time speaking with O’Hara about the diversity of their fund line-up, their approach to the ETF space, and financial markets on a more general basis, including stocks, bonds, China, and more.

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