The 60/40 portfolio worked because one half protected the other. That bargain is breaking down, and the way investors are now building portfolios is set to make index blending a core capability rather than a niche one.  

The hedge that lost its edge 

For much of the 2000s and 2010s, stocks and bonds tended to move in opposite directions, giving investors a reliable buffer against equity downturns. During the 2007–2008 Global Financial Crisis, for example, global equities fell by roughly 54% while global bonds gained more than 6%.  

That relationship has now largely broken down. From 2021, persistent inflation and supply-side shocks undermined the bond hedge, and in 2022 the S&P 500 and the Bloomberg Global Aggregate fell together, by roughly 18% and 11% respectively. 

The correlation has since eased, but investors and economists remain divided on whether it will return to the negative territory that underpinned the 60/40 – much depends on the macroeconomic environment. One thing, however, is certain: bonds can no longer be assumed to diversify equity risk. 

A third portfolio pillar 

For investors, this is a structural question about diversification, not a tactical call on duration. Standard allocations are moving from two pillars to three or even four: an equity core, a reduced fixed income sleeve, and one or more diversifiers such as real assets, digital assets and option-based strategies like buffers and covered calls. 

None, however, is a like-for-like bond substitute. Buffers address downside risks. Covered calls cap upside potential in exchange for income and lower volatility. Real assets and gold offer an inflation hedge, and digital assets add a return stream with different drivers.  

The upshot: diversification can no longer be inherited, it has to be designed. And that creates a problem the old model never had.  

Tailwinds for index blending 

As investors search for new multi-asset configurations to deliver diversification, index blending – a composite of different indices, governed by explicit weights and rebalancing rules – may become the preferred engine for building them.  

Firstly, blends solve the benchmarking problem. A 60/40 had an obvious reference point. A portfolio built from three or four different asset classes likely has none, so a rules-based blend becomes both the benchmark and the foundation for the actual investment vehicle, whether it’s a model portfolio, multi-asset ETF or separately managed account (SMA).  

Secondly, rules-based construction keeps costs transparent and allows for rigorous backtesting before capital is committed. That is important because new pillars introduce variables that need examining – correlation across regimes, the liquidity of each component, strategic versus risk-based weights, etc.  

Thirdly, blending is a practical route to customisation. Because it builds on existing indices rather than starting from scratch, a bespoke variant only requires choosing the components, weights and rebalancing rules, rather than designing, sourcing data for and maintaining a new index methodology.  

Access matters 

Access is one of the key challenges asset managers face when designing multi-asset portfolios. As portfolios expand from two pillars to three or four, the strongest index for each rarely sits with a single provider. A blending capability limited to one provider’s catalogue therefore inherits its gaps.  

PANTA’s Index Operating System provides an open platform for teams to bring in data from multiple providers, backtest and iterate on designs, and run calculation and rebalancing within a single environment. Each index component can be chosen on merit, and the effect of swapping or reweighting a component can be examined in detail.  

Teams can then spend their time on designing and testing new multi-asset strategies, not on stitching together data and infrastructure. 

Conclusion 

The 60/40 portfolio is unlikely to disappear, but its central tenet – bonds as a reliable equity hedge – no longer holds. Demand for new multi-asset solutions is growing, and with it the need for carefully designed and tested portfolios. Index blends, we think, will increasingly underpin and facilitate those solutions.