US Dollar Could Form Part of Traditional 60/40 Portfolio: Goldman Sachs

In the latest edition of its Briefings newsletter, Goldman Sachs’ head of asset allocation research, Christian Mueller-Glissmann, argues that the US dollar could be a good addition to the traditional 60/40 portfolio mix for investors.

Observing that the correlations between stocks and bonds have increased in recent years, Mueller-Grissmann notes this will increase investor nervousness about both assets falling in tandem. “This means holding a 60/40 portfolio has gotten more risky, because bonds are less likely to buffer equities when they fall,” he explains.

A normalisation of inflation has seen the correlation weaken a little, but the bank notes that “sticky inflation” remains a risk, thus delaying the expected monetary policy easing by the Federal Reserve. “That would be bad news for bonds, of course, but it could also weigh on economic growth and equity valuations eventually,” Mueller-Glissmann says. “That’s not our base case, but it’s definitely something multi-asset investors are worried about.”

He adds that a good hedge would be the dollar, observing that the currency would benefit from persistently higher US rates, not to mention its role as a safe-haven play in the event of a global economic slowdown, and amidst growing uncertainty as to the outcome of the US election in November.

“For nervous 60/40 investors, the dollar could be a good portfolio addition,” Mueller-Glissmann concludes.