End of the 60/40 model? What a multipolar world actually requires of your portfolio

The global order that once anchored markets is shifting – and with it, the playbook that investors relied on for decades.

At particular risk is the long-standing 60/40 model –  a strategy allocating 60 per cent of a portfolio to stocks for growth and the remaining 40 per cent to bonds for safety. Historically, when stocks fall, bonds would rise to balance the loss. But in recent years, they have often been moving in tandem, leaving portfolios exposed to heightened market volatility.

Paul Lentz, junior portfolio manager at DNCA Investments, an affiliate of Natixis Investment Managers, explains why a fundamental rethink of fixed income is required to navigate today’s global complexities.

Q: In a multipolar world shaped by structural shocks, how should fixed income strategies adapt to preserve capital?

Lentz: The shift towards a multipolar system is the defining secular trend of the last decade. The era of undisputed US dominance, where the dollar served as the world’s sole anchor, is behind us. And we are entering a structural transition where the foundations of trade and monetary balance are being redefined.

Historically, economic slowdowns were mostly demand-driven and central banks could stimulate growth by lowering interest rates. In a world of deglobalisation and shifting alliances, we now face supply-driven shocks such as trade frictions, resource competition and regional conflicts that drive up inflation and interest rates while pushing confidence and consumption down. This causes both stocks and bonds to sell off simultaneously.

This means fixed income in its passive form no longer acts as a reliable hedge. To preserve capital and generate positive returns, investors must prioritise flexibility and liquidity so that they can pivot quickly when circumstances change.

Q: If stocks and bonds are now moving in the same direction, how can investors truly diversify?

Lentz: When this 60/40 traditional diversification strategy breaks down, investors can pivot towards absolute return strategies to protect their portfolios. Such strategies aim for positive gains regardless of market direction, unlike those that only seek to beat a specific index, even when that index is performing poorly. This approach allows investors to look beyond simple interest rate bets and diversify risk by incorporating other strategies within their fixed-income allocation, including foreign exchange, emerging markets, real rates and yield curve positioning.

True diversification now requires looking at the overall portfolio. The end of the 60/40 model has created opportunities to include real assets, such as commodities, into a portfolio. These often provide a strong hedge against the very supply-side shocks that cause stocks and bonds to sell off together.

Q: Does passive bond indexing still have a place in today’s volatile macro environment?

Lentz: The case for passive bond investing has diminished significantly. While it remains a low-cost option, its inherent flaws are magnified in a multipolar world.

Most bond indices are weighted by the amount of debt outstanding. This creates a so-called debt trap because the more a country or firm borrows, the larger its weight in the index becomes. Effectively, a passive investor is doubling down on the most indebted entities. This is fundamentally different to equity indexing, where market cap grows alongside a company’s success.

That said, short-duration passive funds can still preserve capital for those with low risk appetite. However, they lack the agility of active investing to exploit the rapid shifts in interest rate regimes and credit cycles now playing out globally.

Q: How can investors balance inflationary pressure against the deflationary potential of artificial intelligence (AI)?

Lentz: I think the market is overly focused on the long-term deflationary promise of AI. I believe there is an overlooked short-term inflationary pressure driven by the massive capital expenditure and increased demand for AI-related commodities, energy and specialised labour.

These forces do not work in isolation. As the demand for computing power surges, the pressure on global supply chains will add to the strain posed by deglobalisation and push prices higher. For investors, the key is maintaining a flexible strategy that can capture the upside of technological winners while quickly reducing exposure to the losers.

Q: With the rise of algorithmic trading, is human judgment still essential in fixed income?

Lentz: Algorithmic and AI-driven trading have undoubtedly made markets faster and more reactive. AI excels at processing vast datasets for pattern recognition, but struggles with idiosyncratic risks and unprecedented black swan events. So, human judgement remains indispensable.

The risk of over-relying on AI lies in the homogenisation of market reactions. As algorithms learn from one another, they create a feedback loop that narrows the market's focus to a few predictable patterns. This makes the entire financial system more vulnerable to unforeseen disruptions.

On the other hand, humans have the ability to interpret events qualitatively, for example the nuance of a central bank’s tone or the long-term implications of a geopolitical shift. In a complex and multipolar world, machines can do the heavy lifting of quantitative analyses but humans must maintain the strategic steering and decision-making.

Published on The Business Times on 29 April 2026