Global money managers warn the traditional 60/40 portfolio is dead

 

The IMpower Fund Forum is a truly global conference with a reach across markets and countries. In listening to many presentations, I heard only one mention of Australia. It was noticed that our local industry fund flows are diversifying away from the US to other parts of the world and into private markets.

Several key themes dominated the Monaco discussion.

Geopolitics

In four decades of looking at equity markets, geopolitics has been a headline theme for discussion, but it has only ever provided a buying opportunity.

Most speakers agreed, but I kept hearing them say that this time it is different. I am always on alert when I hear that comment.

That’s because history shows it is impossible to predict where geopolitical scenarios will end up – and how they will actually impact markets.

Tariffs were also a hot topic, reflecting the current geopolitical upheaval, as were the medium- to long-term effects of the trade war.

Former Greek finance minister Dr Yanis Varoufakis, who these days calls himself a geopolitician, described President Donald Trump’s economic strategy as a “controlled reordering” of the global financial system, reminiscent of the 1971 Nixon shock. Trump’s preference for tariffs and a weaker US dollar aims to shift capital flows.

I agree with this and suggest it supports the argument to carefully consider scenarios in decision-making around geopolitics – particularly as the US increasingly prioritises national interest over international stability.

Globally, the continued rise of China, the persistence of the Ukraine war and the complexity of Middle East dynamics all require scenario-based planning. That means Australian policymakers and investors must anticipate shifts in capital flows.

The US risk premia

Former US ambassador to Germany John Emerson made the point that America is starting to be seen as having an element of sovereign risk. This is already evident in outgoing capital flows from that nation.

One Swiss private bank leader says it’s impacting portfolios. Investors are trying to determine the US risk premia right now.

But the single biggest question in the room was about the future of the US dollar. Where is it heading and what degree of hedging should clients take?

There’s no doubt the status of the US dollar is being challenged, but there is no stable alternative except gold. This is one explanation for the continued strength of gold, even overtaking flows into euros. However, another consensus standpoint on trade was around reducing US assets on an asset allocation basis as well as lifting US dollar hedging.

Public v private markets

It was argued that the traditional 60/40 portfolio is losing relevance, as we have seen in the move to private markets. What’s more, private wealth flows are increasingly favouring private markets, with Bank of New York Mellon reporting that 53 per cent of first quarter 2025 fund flows went into private markets.

At the same time, there was awareness that public markets are shrinking, with fewer listings and an increased number of delistings. The view was that private assets, while valuable for diversification, must be used judiciously.

Another consensus trade was infrastructure in the private market area. I agreed with the framing presented for this asset class as being a cornerstone of resilient portfolios. This view also aligns with priorities around energy transition, transport and digital infrastructure.

The correlation between rising bond and equity volatility makes infrastructure a compelling counter-cyclical asset class.

Wealth management

Martin Gilbert, former chief executive of Aberdeen and now the chair at Revolut, spoke about the UK market in private wealth. Unlike Australia, which has a strongly growing wealth management market and a shortage of advisers, the UK is a zero-growth market. However, 32 private equity firms are buying up and aggregating financial advice firms. We are seeing a similar trend in Australia but nowhere near 32 private equity firms.

So the industry is populated by either big or small. The point was made that a firm does not want to be in the mid-tier. The main criticism of larger wealth managers is that they primarily offer a distribution, or sales-led, culture with in-house products sold with specialised access as opposed to a client-first investment-led solution.

Conference overview

A key conference takeaway was that while the first six months of 2025 have been dominated by market and geopolitical volatility, there is some optimism about the next period. Given the upheaval will continue, it is important to look at scenario planning.

Diversification too, within and among asset classes, was a key theme. This approach will continue to ensure portfolios perform on a risk-adjusted basis, as well as being contrarian and opportunistic when downside volatility occurs.

Will Hamilton is managing director at Hamilton Wealth Partners.

This article first appeared in The Australian as Global money managers warn the traditional 60/40 portfolio is dead.