Key Takeaways
- • Man Group argues the traditional 60/40 portfolio's assumption that bonds cushion equity losses is under strain, with stock-bond correlation turning positive since early 2021 (per the firm's Figure 1 data covering February 1992 to August 2026).
- • Man's research indicates that when core inflation persists above roughly 2.5% on average, the stock-bond correlation has historically turned positive.
- • Man contends that many traditional alternatives such as private equity, REITs and commodities carry more equity-like risk than their labels suggest, so true diversification requires return streams that behave differently in drawdowns.
- • Man highlights four liquid alternative strategies: trend following, market-neutral relative value, dynamic multi-asset approaches and long volatility.
- • Man frames liquid alternatives as a means to reduce drawdown severity, smooth return paths and help investors stay invested, while stating it is not advocating abandoning 60/40 entirely.
Summary
A Man Group partner insight published in Investment Week argues that the 60/40 portfolio, long built on the premise that bonds rise when equities fall, is under pressure in the current macro environment. The article points to 2022, when stocks and bonds both suffered significant losses simultaneously, as a clear test of that assumption. Man's research shows the stock-bond correlation has historically turned positive when core inflation persists above roughly 2.5% on average, and the firm says this positive correlation has been evident since early 2021, as shown in its rolling 12-month correlation chart covering February 1992 to August 2026.
Man expects the positive correlation to persist if inflation remains sticky and central banks, including the Federal Reserve, keep rates relatively high even as growth slows. The firm argues that the 'Fed put', the informal policy safety net that supported bonds during equity sell-offs for roughly two decades, may be weakening. It notes that the Fed's new Chair, Kevin Warsh, appears inclined to let market forces play out, which the firm suggests could shift the Fed's pain threshold to a lower strike.
On diversification, Man cautions that adding asset classes such as private equity, real estate, commodities and infrastructure does not necessarily reduce equity risk. The firm says private equity returns are highly correlated with public markets once valuation lags and illiquidity smoothing are considered, REITs can behave like equities in crises, and commodities can be volatile and difficult to implement consistently. The relevant question, in Man's view, is how many genuinely different return drivers a portfolio accesses.
Man presents liquid alternatives, which use publicly traded equities, bonds and futures, as a practical option. The firm highlights trend following, market-neutral relative value, dynamic multi-asset approaches and long volatility. It acknowledges that liquid alternatives were less attractive during the long period of negative stock-bond correlation from the early 2000s through 2020, when costs were hard to justify relative to bonds, but says investor interest is rising as traditional diversification is tested. Man states that it does not advocate abandoning 60/40, but argues that relying on stocks and bonds alone may be an unintentional bet on a macro regime that may not persist, and that stagflation would likely drive both asset classes lower together.
Man expects the positive correlation to persist if inflation remains sticky and central banks, including the Federal Reserve, keep rates relatively high even as growth slows. The firm argues that the 'Fed put', the informal policy safety net that supported bonds during equity sell-offs for roughly two decades, may be weakening. It notes that the Fed's new Chair, Kevin Warsh, appears inclined to let market forces play out, which the firm suggests could shift the Fed's pain threshold to a lower strike.
On diversification, Man cautions that adding asset classes such as private equity, real estate, commodities and infrastructure does not necessarily reduce equity risk. The firm says private equity returns are highly correlated with public markets once valuation lags and illiquidity smoothing are considered, REITs can behave like equities in crises, and commodities can be volatile and difficult to implement consistently. The relevant question, in Man's view, is how many genuinely different return drivers a portfolio accesses.
Man presents liquid alternatives, which use publicly traded equities, bonds and futures, as a practical option. The firm highlights trend following, market-neutral relative value, dynamic multi-asset approaches and long volatility. It acknowledges that liquid alternatives were less attractive during the long period of negative stock-bond correlation from the early 2000s through 2020, when costs were hard to justify relative to bonds, but says investor interest is rising as traditional diversification is tested. Man states that it does not advocate abandoning 60/40, but argues that relying on stocks and bonds alone may be an unintentional bet on a macro regime that may not persist, and that stagflation would likely drive both asset classes lower together.
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