The Benefits of a Balanced Portfolio

We believe the 60/40 – or balanced – strategy is more relevant than ever given today’s challenges, for several reasons.

First, despite near-term volatility, equities remain a key component of building long-term wealth. Several durable growth themes – innovation in AI and healthcare, growth in the digital economy, and the electrification of the economy – continue to present solid opportunities for earnings growth and capital appreciation.

On the fixed income side, following the Federal Reserve’s interest rate hikes in 2022–2023, bond yields are now significantly higher than they were during the ultra-low-rate era. U.S. 10-year Treasury yields, for example, hover around 4%–5% in 2025, offering a more attractive income stream than just a few years ago. Higher yields also increase bonds’ potential to act as a ballast during equity market drawdowns.

Crucially, correlation between stocks and bonds is reverting. Bonds have historically had a negative or low correlation to equities in times of stock market stress. But in 2022, the positive correlation between bonds and equities undermined the diversification benefits of the 60/40 mix when both asset classes fell significantly. This was due to the sharp rise in inflation that forced central banks to hike rates rapidly. With inflation moderating and interest rates now stabilizing, the inverse relationship has reasserted itself, and that helps boost the strategy’s risk-adjusted performance potential.

How can Balanced Fund capitalize on today’s market opportunities while mitigating current risk factors?

We believe Balanced Fund’s flexible mandate, which allows us to dynamically adjust the equity-to-bonds mix in the portfolio to suit current conditions, is critical in navigating the ever-changing market environment. We can proactively reduce the equity weighting when we anticipate periods of spiking volatility and falling equity markets, which may result in lower drawdowns and a smoother return stream over the long run. Similarly, having the flexibility to raise equity allocations during periods where we expect stocks to perform strongly may also contribute to better long-term risk-adjusted returns.

Our active approach is also key. The primary role of the equity allocation in a balanced strategy is to provide capital appreciation. Therefore, we believe it is important that this part of the portfolio is positioned to grow, even amid tougher economic conditions. We leverage our in-depth, fundamental research to identify dislocations between market expectations and our assessment of future growth, and we adjust our equity holdings as risks and opportunities change.

Active management is equally critical in the fixed income allocation, given it is tasked with performing two main duties: maximizing income and limiting drawdowns during periods of stress in the stock market. A 100% allocation to risk-free U.S. Treasuries would satisfy the second duty, but not the first, as one would forego the additional income (or credit spread) that corporate and securitized bonds pay above the Treasury rate. On the other hand, a 100% allocation to high-yield bonds would result in the inverse problem – one would have a high level of income, but also an elevated drawdown risk due to the high correlation between high-yield bonds and equities. We believe the flexibility to adjust both interest rate and credit risk to align with market conditions is key to balancing these two duties and positioning a bond allocation to do its job.

What sets Balanced Fund’s approach apart from other 60/40 portfolios?

Our equity and fixed income analysts work side-by-side covering the same global sectors, which allows for deeper analysis of a company’s fundamental outlook and understanding of management’s true intentions. Our teams are talking daily – if not hourly, depending on the news flow – to share what we’re seeing from both a market and company research perspective. And in times of fast-moving market volatility, we believe our cross-asset team collaboration helps us identify risks and opportunities faster, enabling us to dynamically adjust equity and fixed income holdings as well as the overall asset allocation mix.

What role can the Fund play in an investor’s portfolio?

For over 30 years, Balanced Fund has employed a simple and transparent approach, seeking consistent results for its investors. The Fund’s blend of high-conviction large-cap growth equities and an active intermediate-term bond strategy strives to capture upside returns in strong markets while providing fixed income-like ballast during equity market selloffs.

Balanced Fund can help more cautious investors combat economic- or volatility-related uncertainties while still capitalizing on market gains. Or for investors with cash on the sidelines, Balanced Fund offers a more conservative and lower volatility option to an all-equity portfolio for re-entering markets.

The Fund can be employed as an entire portfolio for investors seeking an efficient asset allocation technique. It can also constitute a stable core in a well-rounded portfolio. The allocation can then be diversified by adding other asset classes or regional or sector exposures to achieve investors’ financial goals in today’s complex markets.

In an environment where the principles of balance and diversification remain as relevant as ever, we believe Balanced Fund can play a valuable role in helping investors stay true to their long-term objectives.