Retail investors have been shying away from 60/40 funds, says JPMorgan
Retail investors have been turning up their noses at balanced funds in recent years, opting for a DIY approach in the search for attractive returns and effective hedging, an analysis from JPMorgan found. “The appetite for multi-asset funds such as 60:40 funds is diminishing among retail investors who instead prefer to construct their own portfolios via primarily holding equity funds increasingly hedged with gold rather than bond funds,” JPMorgan strategist Nikolaos Panigirtzoglou wrote in a Dec. 17 report. He noted that balanced and multi-asset funds — which include offerings that are split 60% toward stocks and 40% in fixed income — have seen 13 consecutive quarters of outflows dating back to early 2022. Instead, retail investors have been trying to build portfolios on their own as of late, turning to stock and bond funds, Panigirtzoglou said. Citing data from the Investment Company Institute, he pointed to bond funds seeing inflows of about $1.36 trillion in 2024 and $1.18 trillion in 2025 through the third quarter, while equity funds took in $913 billion in 2024 and $577 billion this year through the third quarter. In pursuit of performance There are a couple of reasons why investors are opting to handle their own portfolio construction, Panigirtzoglou said. For starters, the correlation between equities and bonds is hovering near zero, as opposed to being deeply negative, he said. This means that rather than having an inverse relationship with one another, the movement between stocks and bonds is looking less closely tied. The change in how these two asset classes move together — and bonds’ usefulness as a hedge — makes balanced and multi-asset funds less attractive, the strategist said. AOR YTD mountain The iShares Core 60/40 Balanced Allocation ETF (AOR) in 2025 Lackluster performance for balanced and multi-asset funds in recent years has also put off retail investors, Panigirtzoglou said. JPMorgan’s analysis found that in 2023, U.S. balanced funds rose 13.8% and they gained 11.4% in 2024. The benchmark, however, for 60/40 funds advanced 18.6% in 2023 and 16.4% in 2024. Further, these investors have been adding exposure to gold as a hedge to their equity exposure, continuing to shun longer-dated bonds, the strategist added. Aim for diversification A portfolio that’s heavy on equities and gold may have fared well in 2025, given that the S & P 500 is up more than 17% and gold futures have soared nearly 65%. But investors shouldn’t bet their nest eggs on this trade continuing to hold up in the new year, according to Amy Arnott, portfolio strategist at Morningstar. “I would definitely be cautious about adding exposure to gold at this point after it’s had a huge run-up so far this year,” she said. “I think if you’re looking for risk reduction and a hedge against market volatility, I think investment grade fixed income is still a good place to be.” She noted that gold is an asset class with a very different risk profile compared to fixed income. “It can be an almost equity-like risk profile at times,” Arnott said. “I think the downside risk for gold is much higher now.” Indeed, the precious metal sold off by more than 4% on Monday, and silver prices tumbled about 7%. Arnott noted that diversification still makes sense for investors. In addition to thinking of investment grade fixed income, investors may want to look at their exposure to international equities. She thinks 30% of equity exposure in non-U.S. names could be a good target. “And if people are concerned about equity valuations or a potential bubble in tech stocks, they may think about adding exposure to value-based index funds and small cap stocks,” Arnott said. She also likes having some exposure to commodities and Treasury Inflation-Protected Securities (TIPS) funds to offer some protection against inflation.
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