(Bloomberg) -- Investors pursuing widely followed 60/40 strategies should consider swapping out bonds for commodities, according to strategists at Bank of America Corp.
The strategy usually involves investing 60% of a portfolio in stocks and 40% in fixed income. But commodities may be a better bet in an environment of prolonged high inflation, the BofA strategy team including Jared Woodard and Michael Hartnett wrote in a note.
“The commodity bull market’s just starting,” the strategists said. The asset class is “a better ‘40’ than bonds in the 2020s.”
Commodity prices have struggled to recover after reaching a peak in 2022 amid concerns over global recession and stunted economic growth in China. But the BofA strategists note that annualized returns since the start of the decade are still around 10%-14%. By comparison, 30-year US Treasuries have handed investors losses of almost 40% in the past four years.
The “commodity secular bull market in the 2020s is just getting started as debt, deficits, demographics, reverse-globalization, AI & net zero policies are all inflationary,” the BofA strategists said.
Global stocks and bonds combined have rallied about 16% in 2024 and are on track for a second straight year of gains, according to data compiled by Bloomberg. The BofA strategists said bonds still represent the best hedge against a potential hard-landing scenario for the US economy.
--With assistance from Jan-Patrick Barnert and Naomi Tajitsu.
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