CIO Suggests Flipping 60/40 Portfolio for More Bond Exposure

The 60/40 stock-to-bond portfolio mix is getting a revamp courtesy of Blackrock’s chief investment officer Rick Rieder. In a current market environment where interest rates are rising, and volatility is racking the stock markets, Rieder suggests flipping the script on the 60/40 portfolio by skewing it more towards bonds.

One of the primary reasons for this is the rising tide of yields in short-term Treasury notes. For example, the two-year note is pushing upwards of 4.5%, reaching a level not seen in about 15 years.

“I think in the near term, 40-60 makes more sense if you can get yields at these levels,” Rieder said in an interview with MarketWatch.

During an interview with MarketWatch reporter Christine Idzelis, adding that insurance companies, pension funds, endowments, and other institutional investors can easily earn a yield of 5% to 6% from a portfolio of short-dated bonds, with some high-yield assets mixed in.

“I think, for the time being, fixed income makes a lot of sense,” Rieder added.

One fund to consider for short-term yield exposure is the Vanguard Short-Term Treasury ETF (VGSH). This ETF offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.

2 More Options for Bond Exposure

To get bond exposure amid turbulent times, many options are available, from Treasury bonds to investment-grade corporate options. However, for a more all-inclusive approach to getting core exposure, consider the Vanguard Total Bond Market Index Fund ETF Shares (BND).

BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a broad spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.

Bond investors can use BND as a traditional hedging component when the equities market goes awry, should a recession hit. Short-term traders can also use the ETF, given its dynamic ability to be bought and sold quickly in the open market.

For more yield with the acceptance of more credit risk, corporate bonds are another option to consider. Therefore, consider the Vanguard Total Corporate Bond ETF ETF Shares (VTC).

VTC seeks to track the performance of a broad, market-weighted corporate bond index. The fund is a fund of funds and employs an indexing investment approach designed to follow the performance of the Bloomberg Barclays U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.

For more news, information, and strategy, visit the Fixed Income Channel.