Reimagining the 60/40 Portfolio
by Robert Hahn, CFA, on September 12, 2023
For decades the 60/40 portfolio, which consists of 60% stocks and 40% bonds, has been a mainstay for asset allocation. The idea of the portfolio is to balance the growth potential and higher volatility of equities with income generation and lower volatility of bonds. Some investors may be seeking alternatives to the 60/40 model, particularly following the challenging year of 2022 where performance for both stocks and bonds declined.
Given the questions we receive from investors and the potential for greater income generation and lower volatility associated with covered call writing, we decided to analyze the returns and standard deviation of our Connors Covered Call Strategy (“CCS”) represented by our Collective Investment Fund or CIF (Ticker COVRDX)1 versus the 60/40 portfolio.
The chart and table below compares the growth of $10,000 invested in the S&P 500® Index, the Connors Covered Call Strategy (“CCS”) and the 60/40 portfolio with their respective standard deviation and returns for the five-year period ended June 30, 2023.
While we think that the 60/40 portfolio will continue to make sense for many investors, we believe that a covered call strategy (preferably ours) might make sense for investors who have longer time horizons or are willing to accept slightly higher volatility than that of the 60/40 model in return for higher potential return.
1The Connors Covered Call Strategy (CCS) is implemented in the Connors Covered Fund – a collective investment trust (CIT) [Connors Covered Call Fund] (For Financial Professionals and Plan Fiduciaries Only). Alta Trust is a South Dakota chartered trust company that acts as the trustee of this Collective Investment Trust (CIT). CITs are bank maintained and not registered with the Securities and Exchange Commission. The Declaration of Trust for the CIT describes the procedures for admission to and withdrawal from the CIT. The Declaration of Trust and the CIT’s Employee Benefit Summary should be read in conjunction with this fact sheet and is hereby incorporated by reference. A copy of these documents may be obtained by contacting Alta Trust at firstname.lastname@example.org. Before investing in any collective investment trust, please consider the trust’s investment objective, strategies, risks, and expenses. Be sure to consult with your financial, legal, and professional tax advisors prior to investment in any collective investment trust. Performance is expressed in USD. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. All investments involve risk, including the potential loss of principal. There is no guarantee that the CIT will achieve its objective. CIT Restriction/Limitations: This CIT may only accept assets of defined contribution plans that are part of a pension, profit sharing, stock bonus or other employee benefit plan of an employer for the exclusive benefit of employees or their beneficiaries and is (i) exempt from federal income taxes under Section 501 (a) of the code, by reason of qualifying under Section 401(a) or 414(d) of the code or (ii) is part of an eligible deferred compensation plan maintained by a state or local governmental unit under Section 457(b) of the Code (“Section 457 Plan”), which is either exempt from or not subject to income taxation. Not FDIC Insured | May Lose Value | No Bank Guarantee | For Financial Professionals and Plan Fiduciaries Only,
The results presented do not reflect actual returns achieved by any of Connors Investor’s clients. Standard deviation measures the variability of the monthly returns for each Hypothetical Blended Return series, calculated over the full-time period presented (9/16/2016-3/31/2023). Hypothetical Blended Return results have inherent limitations, such as the results do not reflect the results of actual trading, but were achieved by means of retroactive application, which may have been designed with the benefit of hindsight. Another limitation is that performance may not reflect the impact that any material market or economic factors might have had on the decision-making process. For various reasons, actual client experience and investment results vary and may be different from those portrayed.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Connors Investor Services, Inc. [“Connors”]), or any non-investment related content made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Connors. Connors is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Connors’ current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.
2 Standard deviation - Measure of dispersion of a set of data from its mean. It measures the absolute variability of a distribution; the higher the dispersion or variability, the greater the standard deviation, and the greater will be the magnitude of the deviation of the value from its mean. The table in this article displays a rolling one-year standard deviation for the S&P 500®, Connors Covered Call, and the 60/40 Portfolio.
3 60/40 Portfolio represents a blend of the S&P 500 Stock Index and the Bloomberg Barclays Aggregate Bond Index.