Multi-asset investing: why the 60/40 debate misses the bigger picture

What this difficult environment exposes is not a failure of diversification itself, but the risks of relying on a narrow set of investment building blocks.

Bonds behaving badly?

In the first quarter of 2026, both equities and conventional fixed income came under pressure simultaneously. Elevated energy prices and inflation expectations, driven by supply side disruptions, pushed bond prices down and yields higher when investors might have expected fixed income assets to provide more of a cushion. This reduced the diversification benefit traditionally associated with a simple equity–bond mix.

It’s important to note, however, that this was not a normal market setback. The outbreak of war in the Middle East created a broader macro shock, most visibly through higher energy prices, renewed inflation concerns and a repricing of interest-rate expectations. This put pressure on both sides of a traditional equity-bond portfolio at the same time: equities were affected by weaker risk appetite, while conventional bonds struggled as yields moved higher. The issue, therefore, was the nature of the shock - one that affected several major asset classes simultaneously - rather than a fundamental failure of diversification.

Do investors need a bigger toolkit?

This is where multi-asset portfolios can have an important role to play. Rather than relying primarily on the assumption of a negative correlation between equities and bonds, they use a wider toolkit incorporating real assets, alternative strategies, regional exposures and defensive allocations to spread risk more effectively across different economic outcomes.  

During the first quarter of 2026, we found our broader approach was particularly valuable. While traditional assets struggled, exposure to areas such as global infrastructure and selected regional equity markets helped stabilise portfolio outcomes, reinforcing the benefit of diversification across return drivers - not just across asset classes.

Volatility doesn’t invalidate diversification

In our view, it’s unrealistic to expect diversification to eliminate drawdowns entirely, particularly during acute periods of stress when correlations temporarily rise. Rather, the role of diversification is to manage the magnitude and consistency of outcomes over time, helping investors navigate uncertainty without relying on one single macro assumption.

Final thoughts…

The current environment is a useful reminder that diversification should be dynamic and multi dimensional, rather than a static model anchored solely on equities and bonds. For long-term investors, the answer is not to abandon diversification, but to ensure it’s implemented with sufficient breadth and resilience to navigate a more complex backdrop.