Executive Summary

60/40: It's not over until it's over. 2022 flipped the script on the traditional 60/40 portfolio split, with inflation and growth dynamics switching the traditionally negative correlation between equities and bonds into a positive one. But we do not expect this to last: With inflation levels likely to stabilize in the mid-run, inflation expectations remaining anchored by the still strong credibility of central banks and economic shocks expected to remain demand-driven, stock-bond correlations should return to negative territory, promising positive diversification effects.

Looking beyond stocks and bonds, private assets also offer a diversification benefit due to the long-term capital commitment – but only if held to maturity. Ultimately, they are also exposed to similar fundamental economic dynamics as their traded counterparts.

International diversification helps, especially in a world marked by growing divergence, fragmentation, and protectionism. But it is not enough to insulate portfolios from extreme 1% tail events, particularly when downturns are global.

Sector diversification is also key, considering the increased sectorial concentration risk of most equity and corporate markets. A good sectorial split is a useful downside protection tool, albeit not much of a return enhancer.

Ludovic Subran

Allianz SE

Jordi Basco-Carrera

Allianz SE

Pablo Espinosa-Uriel

Allianz SE