The year 2022 has been named the year of the failure of the 60/40 portfolio. Indeed Its performance year-to-date is the worst ever. From the 1980s until recently that portfolio was delivering equal or better returns than S&P500 but with lower volatility. So the risk-adjusted returns of the 60/40 portfolio were very attractive due to low correlation between equities and bonds.
As measure through the ETF of US investment grade corporate bonds, the bonds are down -17%. The S&P500 (price return) is down -18%. So the two asset classes delivered exactly the same (poor) performance this year.
Although the failure of the 60/40 portfolio is particularly noticeable this year (because both equities and bonds are down), the portfolio has been failing since 2020 where Central Banks artificially inflated/manipulated risky assets prices. As the graph below shows, 2020 and 2021 were years of positive failure (with 12 months correlations between 40% and 60%), 2022 is a year of negative failure. Already 3 years that Central Banks have been breaking the markets.
