So far, 2023 has been kind to beleaguered 60/40 portfolios.

As discussed here at some length earlier this week, the restoration of a negative stock-bond correlation and the decline in US yields from the highs seen in February are a boon to balanced portfolios coming off the worst year on record for the simplest of simple diversification strategies. Bonds are struggling in May, but that’s ok because big US tech is up nearly 5% MTD.

The biggest of big-picture debates for asset allocators is whether 60/40 is passé and if it is, what replaces it. As I’ve endeavored to make abundantly clear in these pages, the correlation assumptions we came to take for granted in the 21st century aren’t the norm historically. You’re not supposed to “have your cake and eat it too,” so it’s entirely possible that investors will need to take the “multi-” in “multi-asset” a little more seriously going forward.

So far in 2023, 60/40 has rebounded emphatically. Indeed, this year is on pace to neutralize 2022’s drawdown.

“60/40 had a disastrous 2022, but a delightful 28% annualized return in 2023 is the best since 1995,” BofA’s Michael Hartnett remarked.

“With ‘fattening left-tail’ accident risk, markets have to price a surprisingly high probability of a ‘crash-landing mega-Fed cut’ in case it all goes wrong,” Nomura’s Charlie McElligott said. “This is the primary catalyst for why the bond / stock correlation has reversed from last year’s ‘inflation overshoot = shock Fed tightening’ regime where all assets were losers and instead, why ‘bonds as your hedge’ has returned to the fore,” he added.

And yet, with cash “performing” in light of the highest money market yields in 15 years and commodities still offering a “real” hedge (figuratively and literally), it’s perhaps no surprise that the 25/25/25/25 portfolio is holding up too.

That looks pretty good when you consider the “sleep well at night” appeal of a 25% cash allocation and a better Sharpe.

As BofA’s Hartnett put it, “bulls are outperforming bears in 2023 but a diversified, conservative portfolio is doing just fine.”