12 Oct 2026 - The 60/40 portfolio isn't broken - it was always incomplete

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60/40 isn't dead but it isn't enough, and when stocks and bonds fall together as in 2022, systematic trend investing offers crisis alpha that traditional diversification can no longer guarantee.

The 60/40 portfolio (60 per cent equities, 40 per cent bonds) was the bedrock of portfolio construction for half a century. Then it delivered its worst calendar year since the Great Depression in 2022. Both asset classes fell simultaneously. The supposed ballast of the bond sleeve offered no protection at all.

The debate that followed has mostly centred on whether 60/40 is dead. That is the wrong question.

The 60/40 framework was built around a specific set of macroeconomic assumptions. Inflation would remain contained. Interest rates would drift lower over time. When equities fell, it would be in response to slowing growth. Central banks would cut rates. Bond prices would rise. Equities and bonds would move in opposite directions when it mattered most.

Inflation has evolved. Consider the current environment. The US-Iran conflict and the surge in oil prices have driven bonds and equities lower at the same time. Buying bonds for risk off is no longer simple portfolio protection. The diversification benefit that looked compelling in normal markets has become far less reliable in the moments it is needed most.

The response to these limitations has been to diversify further and add more asset classes: private equity, private credit, real assets, infrastructure, to portfolio allocations. For many investors, these additions make sense as sources of return diversification over a long horizon.

But they do not solve the specific problem that 60/40 has. Most of them are not designed to perform during sustained periods of market stress. A number of them add breadth, not protection.

This is where systematic trend investing strategies deserve more serious consideration in portfolio construction discussions.

Trend investing harnesses the fact that markets that have been moving in one direction tend to continue doing so for a period, giving rise to the adage that 'trend can be your friend'. This can be across equities, fixed income, commodities and currencies.

During the equity market dislocations of 2000 to 2002, 2008, and 2022, systematic trend investing strategies have historically tended to generate strongly positive returns, consistent with published academic findings that trend investing delivered positive returns in eight of the ten largest global market crises over the past century. These strategies tend to be most valuable precisely when traditional portfolios are most stressed. Practitioners call it crisis alpha: not just low correlation in normal times, but genuine positive performance when conditions deteriorate most sharply.

The case for inclusion

Decades of academic research have demonstrated that adding a systematic trend investing allocation to a traditional portfolio has historically improved risk-adjusted returns, reduced maximum drawdowns, and provided genuine diversification that survives stress testing. This includes a study published in the Journal of Financial Economics on time-series momentum and research published in the Journal of Portfolio Management on a century of trend investing returns.

Beyond its defensive characteristics, trend investing has also demonstrated the capacity to generate strong standalone returns across a full range of market conditions, not just during periods of crisis. The same academic literature that documents its crisis alpha also shows positive average returns in each decade since 1880, across expansions and contractions, high- and low-inflation regimes, and rising and falling rate environments. For allocators, this reframes the conversation: trend investing is not simply a hedge to be tolerated for its diversification benefit, but a return stream capable of standing on its own within a portfolio.

That said, trend investing strategies can experience periods of flat or negative performance when markets are range-bound or subject to sharp reversals. The same is true of bonds in an inflationary environment. The question is whether its underperformance is correlated or uncorrelated with the rest of the portfolio. For systematic trend investing, the evidence consistently suggests the latter.

The incomplete portfolio

The 60/40 portfolio is not broken. It continues to do what it was designed to do, in the conditions it was designed for. The problem is that investors have come to expect it to work in all conditions.

A portfolio genuinely prepared for the full range of macroeconomic environments needs something that 60/40 does not contain. Not more of the same return streams in different wrappers. Rather, a genuine alternative strategy positioned to benefit from the kinds of sustained, directional moves that accompany the most difficult periods for traditional assets.

The conversation has been dominated for too long by whether 60/40 is dead. The more productive question is what belongs alongside it.

Trend investing

Trend investing, often called 'trend following' or 'momentum investing', doesn't attempt to predict markets. It is about identifying what markets are 'actually doing', rather than trying to predict what they 'might do'.

It focuses on buying assets that are moving up in price, and selling when they turn and start moving down. Instead of looking at an individual company's finances and prospects, it ignores earnings calls, balance sheets and stock-picking entirely. It focuses instead on identifying existing market trends and capturing rises that continue for a period of time, using a range of technical indicators, such as moving averages and breakout channels, to gauge price direction and momentum.

It uses systems, quantitative and rules-based processes to provide risk-adjusted diversification and low correlation with traditional investments, trading across diverse global markets and asset classes.

For example, East Coast Capital Management maintains a diversified, liquid portfolio of over 90 international futures markets, spanning commodities, currencies, equity indices and fixed income across geographically diverse markets, a genuinely different set of return drivers to a standard balanced portfolio as well as to most 'alternatives'.

This article was published by Investor Daily and was authored by ECCM's CEO, Simone Haslinger.