November’s rally has set the 60/40 portfolio on track for its best month since 2020
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Investors who held a balanced portfolio and just let it ride through November are about to be handsomely rewarded: The 60/40 portfolio is cruising to its best month in three years. The iShares Core Growth Allocation ETF (AOR) , which allots 60% of assets to equities and 40% to fixed income, has rallied 6.9% in November, through Wednesday’s close. That’s just short of the 7.5% advance in November 2020, when progress on Covid vaccines heralded an economic reopening. This time, investors are optimistic that the Federal Reserve has wrapped up its rate-hiking regime and that the economy is on track for a soft landing. “If you look at market pricing, it seems as though investors are expecting a pretty benign set of circumstances in 2024,” wrote Deutsche Bank macro strategist Henry Allen in a report Tuesday. “Both the Fed and the ECB are seen cutting rates in Q2, followed by a steady pace of cuts over the rest of the year,” he said. “That optimism has helped support a major market rally in November.” In particular, balanced portfolios like AOR were aided by a confluence of factors this month. AOR YTD line YTD performance for iShares Core Growth Allocation ETF (AOR) First, bond yields cooled substantially in November. The 10-year Treasury yield crested above 5% to touch its highest level in 16 years in late October. Just this week, the rate on the benchmark note has slipped below 4.3% . Bond yields decline when bond prices rise, so cooling rates have lifted prices for fixed income allocations. Second, falling yields have also helped lift equities across the board but they’ve been especially beneficial to rate-sensitive sectors such as technology and real estate. Indeed, the information technology sector of the S & P 500 is up 12.8% in November, followed closely by real estate, higher by 11.4%. The broad market index itself is on pace for an 8.5% move higher this month. Finally, investors in balanced portfolios benefited from staying diversified and avoiding knee-jerk changes to their allocations. The AOR exchange-traded fund suffered a -15.6% total return in 2022, including reinvested dividends, as stock and bond prices declined — but even that was less than the total return of -18.1% for the S & P 500. A recovery in both asset classes has since lifted the AOR to a total return of 10.8% for 2023, showing that staying the course can pay off. — CNBC’s Michael Bloom contributed reporting.
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