Investors with classic “60/40” portfolios are facing the worst returns in a century this year, BofA Global Research said in a note on Friday, noting that bond markets continue to see huge outflows.
“2022 (is) a simple story of an ‘inflation shock’ causing a ‘rate shock’ which in turn threatens a ‘recession shock’ and a ‘credit event’; the inflation shock has not finished,” BofA said in its weekly “Flows Show” report.
Rising inflation, rising interest rates, the war in Europe and the energy crisis have caused valuations to plummet across asset classes in 2022.
The S&P 500 .SPX stock index has lost about 23% this year, having fallen 15% since mid-August alone.
Hopes that inflation may be receding faded on Thursday after data showed US consumer prices rose faster than expected in September, reinforcing expectations that the Federal Reserve will make another rate hike. interest rates of 75 basis points next month.
Using EPFR data, BofA said investors have sold bonds for eight consecutive weeks, while European equity funds have seen outflows for the 35th consecutive week.
What are ’60/40′ portfolios?
So-called “60/40” portfolios typically have 60% of their holdings in stocks and the remaining 40% in fixed income.
BofA said that the annualized return so far in 2022 of this type of portfolio is the worst in the last 100 years, while that of the “25/25/25/25” portfolios , which have equal parts of cash, commodities premiums, stocks and bonds, has fallen 11.9%, its worst performance since 2008.
Equity funds posted inflows of $300 million for the week through Wednesday , while fixed income saw massive outflows of $9.8 billion.
It was the sixth week in a row that investors sold financial products, the first outflow from infrastructure in 11 weeks and the 18th week of outflows from bank loans, Bofa said.
Bofa’s “bull & bear” indicator remains at “lower maximum” for the fourth week in a row.
CPI in the US rises more than expected in September and requests for unemployment aid increase.
Reuters information.
