Gold record run latest sell call on classic, outdated 60/40 portfolio

The traditional 60/40 portfolio has been under attack for years, and recent hot transactions in precious metals and cryptocurrencies are making it lose some of its relevance. Many strategists and investors are turning to a 60/20/20 market portfolio: 60% of stocks are unchanged, but fixed income is losing half of its former grip on investor money, with 20% allocated to alternatives such as: gold And bitcoin.

They say stocks and bonds often move in the same direction, and inflation, geopolitical risk, government spending and high debt burdens mean bonds no longer provide the protection they once did. “We are seeing greater adoption of non-equity, non-fixed income products,” Todd Rosenbluth, head of research at VettaFi, told CNBC.

In this new approach to structuring market risk, gold is one of the underlying assets, not a hedge on the margins of a portfolio. Gold recently reached a record high above $4,300. Gold is up more than 60% since the beginning of the year, fueled by central bank demand, dedollarization, geopolitical tensions and what is called the “adult trade.”

“What’s actually happening now is a shift toward gold acceptance,” Steve Schoffstall, director of ETF product management at precious metals and critical materials investment firm Sprott, said on CNBC’s “ETF Edge” earlier this week. Typically, he said, this has been viewed as an “edge” allocation tool, “but what we’re really starting to see now is that more prominent economists are recommending moving from 60-40 to something closer to 60-20-20,” he added.

But Schoffstall also said “for most people, we think they’re probably in a good position if they have a 5 percent to 15 percent allocation to physical gold.”

The performance and investor appeal of gold ETFs has increased rapidly. SPDR Gold Shares (GLD) And iShares Gold Foundation (IAU) It’s up about 11% this month, but the influx of investor assets into gold funds dates back to earlier this year. Gold ETFs reported their largest monthly inflows ever in September, totaling close to $11 billion, according to the World Gold Council. According to ETFAction.com, SPDR Gold Shares generated over $4 billion in revenue last month alone and raised another $1.3 billion from investors in mid-October. Sprott said that the total assets transferred by investors to gold funds this year exceeded $38 billion.

Some investors are investing in cryptocurrency, specifically Bitcoin, with a similar 20% approach. Some financial advisors go even beyond that level, saying an investment approach of up to 40% in cryptocurrency is defensible.

Bitcoin reached a record high of $126,000 on October 6 and has received an influx of new money this month with participation from the iShares Bitcoin Trust ETF (IBIT). Nearly 1 billion dollars in one dayand over $4 billion in mid-October.

Rosenbluth said the set of alternatives is no longer a single bet but a mix of commodities, crypto and private credit all packaged in ETFs, but investors need to understand there are significant differences between the bets. “Gold is at more risk… cryptocurrency is at more risk,” Rosenbluth said.

Silver It has also gained more traction among investors, and unlike gold, silver is riding on multiple global economic trends, including industrial demand, electrification and automation. Prices recently climbed to a record high of $53.59 per ounce, and some analysts expect it to trend much higher. “The uses of silver are very broad, with approximately 10,000,” Schoffstall said.

Amid the current record in precious metals and cryptocurrencies, Rosenbluth warns that this shouldn’t be about investors chasing the highest returns in the short term. While there may be a time when these alternatives increase overall portfolio returns, there is no guarantee that this will always be the case. The main reason to restructure a portfolio with a hedge is to add leverage that works differently during ups and downs in stock and bond markets and can help smooth returns over time, Rosenbluth said.

This week was a good example of how these assets, which are considered popular hedges, can have very different market dynamics. Bitcoin, which broke its record above $ 126,000 at the beginning of this month, sold sharply with a weekly loss of over 8% as of Friday morning, while gold and silver continued their rise and continued their weekly gains without slowing down. Meanwhile, private credit, which has ballooned in recent years but has also sparked fears that it is creating a bubble, has become a major market concern since the surprise bankruptcy of auto parts company First Brands last week.