At the ASA Investor Conference 2025, prominent industry figures weighed in on the model’s future, offering contrasting views on whether the classic 60 per cent equity and 40 per cent bond allocation remains an optimal approach in today’s investment climate.
Andrew Lockhart, managing partner at Metrics Credit Partners, raised concerns over the growing concentration of market performance within a handful of large-cap stocks, questioning whether equities continue to deliver reliable growth.
“If you actually look at the earnings that are generated in the ASX 200, and if you look at the concentration of US equity markets, you’re taking a lot of risk in terms of a small number of stocks that are generating the outperformance at an index level,” Lockhart said.
“The earnings [on the ASX 200] have been relatively flat or in decline, in terms of what’s actually being delivered. And so, the idea that people are investing in public equities for growth, I am not necessarily seeing that.”
Lockhart pointed to private credit as an emerging alternative that may offer more stable income and a hedge against public market volatility, noting that Australian market performance is heavily dependent on the banks creating significant volatility.
“If you look at the Australian market performance, it is heavily skewed towards the performance of the banks. There’s an awful lot of risk that people take in terms of volatility in public markets,” Lockhart said.
“We’ve seen bond and equity market correlations increase over recent periods of time. And quite frankly, I think it does give rise to really considering whether or not a portfolio split of 60/40, in the traditional sense of equities and bonds, is appropriate.
“I think there’s an increasing allocation into private markets and increasing allocation into alternatives that have been designed to mitigate some of the volatility and to actually deliver a higher total return to investors.”
Don Hamson, managing director at Plato Investment Management, offered a different perspective, acknowledging that in recent years, ultra-low interest rates made bonds an unattractive asset class. However, with interest rates now rising, he believes investors can be more confident in the traditional 60/40 strategy.
“Five years ago, when interest rates were close to zero, you’d have to question whether the 60/40 strategy was right,” Hamson said. “Now, with interest rates having risen, there’s at least a reasonable yield on bonds, and even better yields on credit. So you’ve got a better starting point than five years ago,” he said.
Simon Doyle, head of multi-asset at Schroders Australia, stressed that the success of any 60/40 portfolio depends heavily on the specific assets within both the equity and bond components.
“The critical question is, what’s in the 60 and what’s in the 40?” Doyle said. “If it’s just Australian stocks and government bonds, it’s not particularly inspiring. But if the 60 per cent is made up of Australian stocks, European stocks, potentially private equity … there’s choices there.”
Doyle emphasised the importance of getting the 40 per cent allocation right, focusing on stability, diversification and income, which are just as critical as the equity portion of the portfolio.
With interest rates normalising and inflation likely to remain structurally higher, Doyle cautioned that the extraordinary returns seen in the years following the global financial crisis, particularly in risk assets, are unlikely to be repeated.
“We’ve now got a normalisation of interest rates, we probably have structurally higher inflation, starting from today we have slightly elevated valuations in markets, that by itself constrains the speed limit of returns,” Doyle said.
“Think about the componentry within the 60/40 and have realistic expectations that that portfolio will be able to deliver, given the starting points and macro constraints.”
In his annual letter to shareholders earlier this year, BlackRock CEO Larry Fink addressed the 60/40 conundrum, suggesting that the future standard portfolio could resemble a 50/30/20 allocation – dividing assets into stocks, bonds and private assets such as real estate, infrastructure and private credit.
“As the global financial system continues to evolve, the classic 60/40 portfolio may no longer fully represent true diversification,” Fink wrote.
He highlighted the appeal of the 50/30/20 structure, noting that while private assets carry greater risk, they offer substantial potential benefits.
However, Fink conceded that while the 50/30/20 model has clear appeal, the investment industry is not yet structured to support this approach – it remains largely split between traditional asset managers focused on the 50/30 (stocks and bonds) and specialised private market firms dominating the 20 per cent allocation to private assets.
“Bridging the divide between the 50/30 and the 20 is almost impossible for most individuals,” Fink said.
“Even those who can afford it face another diversification problem within that 20 per cent. Often, they barely have enough capital to meet the minimum for just one private fund – and having 20 per cent of your portfolio locked up in a single fund isn’t really diversified”.
