BlackRock Reportedly Scraps 60/40 Portfolio Amid High Inflation Environment: 'Old Assumptions Do Not Reflect The New Regime'

BlackRock Inc BLK strategists are reportedly forsaking the 60/40 portfolio in favor of public and private investments as well as tactical holdings of bonds in order to navigate a higher interest rate regime.

What Happened: Strategists from BlackRock Investment Institute, the research arm of BlackRock, recommend "breaking up traditional asset allocation buckets, moving away from broad allocations to public equities and bonds," reported Bloomberg, citing a Tuesday note.

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"These old assumptions do not reflect the new regime we're in — one where major central banks are hiking interest rates into recession to try to bring inflation down," the strategists said.

Specific Sectors: They recommend focusing at specific equity sectors, such as energy or healthcare, and selecting companies with robust cash flows and resilient supply chains that can withstand a recession, the report said.

"We believe in a new approach to building portfolios," where "strategic views need to be more granular — across sectors and within private markets — to help build more resilient portfolios in the new regime," the strategists said, according to the Bloomberg report.

In the past, other experts, too, have presented arguments to re-look at the 60/40 portfolio in an environment where inflation continues to remain stubbornly high.

In November 2022, prominent economist Nouriel Roubini had highlighted how inflation hurts both stocks and bonds, and people should reconsider the classic “60-40” investment strategy.

Fixed-income Allocations: The BlackRock strategists also pointed out that investors should rethink fixed-income allocations and indicated they favor tactical allocations to inflation-linked bonds and short-term debt due to attractive yields and possibilities of enduring above-target price pressures.

"We see interest rates staying higher as the Federal Reserve seeks to curb sticky inflation — and we don't see the Fed coming to the rescue by cutting rates or a return to a historically low interest rate environment," they said.

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