The 60/40 portfolio strategy saw its worst performance in the first half of 2022 than at any point in decades, but a senior Morgan Stanley strategist says it’s due for a comeback — and soon, according to news reports.

The Bloomberg index that tracks a portfolio with 60% in stocks and 40% in bonds plunged 17% in the first half of this year, the worst drop since 1988, Bloomberg writes. That’s due to equities entering a bear market just as rising inflation and the U.S. Federal Reserve raising interest rates caused volatility in bond prices too, according to the news service.

But Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, believes the classic strategy is merely “resting” and is far from broken despite tighter Fed policy, Bloomberg writes.

Sheets admitted that previous market tumbles “left investors wishing they had held more fixed income, this year has left investors wishing they didn’t own anything,” according to the news service.

But while equities and fixed income have become positively correlated, they don’t move the same on many days, according to Sheets, Bloomberg writes. He also thinks that fixed income may have lost some of its appeal as a diversified but nonetheless still serves that function, according to the news service.

And Sheets also believes that the 60/40 portfolio is set to have better long-term returns over the next 10 years, at least in the U.S. and Europe, than at most periods over the last decade, Bloomberg writes.

The wirehouse recently raised its long-term performance estimates for equities as well as bonds in U.S. and Europe, according to the news service.

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