InvestmentNews' Jason Kephart writes about the popularity of the classic 60/40 portfolio by pointing out that the $19 billion Vanguard Balanced Index Fund [profile] has been up 5.48 percent this year through June 24. Vanguard's fund is 60 percent U.S. stock market and 40 percent Barclays U.S. Aggregate Bond Index.

Kephart said that risk parity funds, which assume the risk in a portfolio comes from stocks and lower stock allocation, are designed to achieve the same returns with less risk, are underwater. The portfolio levers bonds to get those returns but Fed concerns over interest rates have scared investors from portfolios heavy with bonds. Invesco Balanced-Risk Allocation Fund is down 4.89 percent.

Some critics of the 60/40 portfolio say that it won't protect investors from risk, however. Harry Merriken chief investment strategist at Gateway Investment Advisers[profile] pointed out that investors should have learned that most asset classes are correlated in 2008 when classic diversification models failed. That correlation exposes stocks to bond risks and vice versa. He suggests alternative funds as a method of diversifying without going the old school route.

Morningstar's alternative-funds research director, Nadia Papagiannis, said advisers are "piling into" to alternative funds.

To read more, click here, here and here. 

Edited by: Casey Quinlan


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