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The death of the 60/40 wallet makes returning it even more difficult

(Bloomberg) - Two of the world's largest sovereign wealth funds say investors should expect significantly lower returns going forward, partly because a typical 60/40 equilibrium portfolio of stocks and bonds no longer performs well in the current price environment. The Australian Future Fund said global investors have relied on the bond market for decades to generate returns while adding reserves against stock market risk to their portfolios. Those days are long gone with rapid returns. "Bonds went through this gift retrospectively," said Sue Brick, chief investment officer of the Australian fund of A $ 218.3 billion. A 40-year rally strengthened all portfolios. "But that's over," she said, "it's impossible to replace it - I don't think there is a single asset class that can replace it." The 60/40 model portfolio can generate real profit thanks to lower bond yields. Lim Chow Kiat, CEO of Gulf Investment Corporation (GIC), said returns - after inflation - will be only 1% to 2% a year over the next decade. Compared to growth of between 6% and 8% over the past 30 to 40 years, Lim said at the IMA Singapore Bloomberg conference on Tuesday, "So this is not particularly exciting." They have to work harder diversifying their portfolios to generate returns. She cited six main ways in which markets have changed with the pandemic, including increased regulatory interventions, higher inflation risks, additional performance drivers and “fragile” markets. Just to see more gains, Brake said. However, investors should expect lower returns in the future. Global bonds have risen 382%, or about 5.4% a year, since 1991, based on the Bloomberg Barclays Global Aggregate Index. "We're repeating the same message that it will be harder to drive returns," said Brick, who has returned the fund 9.2% annually for the past decade. "You can't hide in the corner and stop investing because we need to get our return on investment, and I don't think this is the environment in which we should be doing that." Transformation, which received approval to change its reverse convertible mix to 70/30 in 2017. At the end of last year, it held around 73% in stocks and 25% in bonds. Lim also warned of many government incentives and their implications, saying, "As a long-term investor, we have some concerns about the use of incentives." "We tend to use capital and money that is geared towards building long-term growth and structural factors rather than spending the money." Investors also have to deal with geopolitical risk, said Lim, who owns a fund that has had a real return of 2.7% per year for the past 20 years. “This is a chronic problem,” said Lim. “It will stay with us for a long time and we will likely see flare-ups every now and then, just like any chronic illness. You have to handle it right. " (Updates with the Norway Fund in paragraph ninth) For more information articles like this please visit us at bloomberg.com. Subscribe now to stay up to date on the most trusted business news source. © 2021 Bloomberg LP

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