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Hedge Fund Ellington Urges Ditching 60/40 for CLOs, Asset-Backed Securities

  • Real-asset values increase with rising rates, benefiting ABS
  • 60/40 portfolios underperform in contractionary environments

As the Federal Reserve continues to tamp down rising inflation with an aggressive rate-hiking schedule, it may make sense for investors to abandon a popular guidepost for moderate investor risk, according to Ellington Management Group.

The classic 60/40 portfolio, a strategy that advocates holding 60% equities to 40% bonds, should be shelved for now and investors should rotate into sectors that benefit from rising asset prices and floating rates, the hedge fund said in a new report. These include asset-backed securities and collateralized loan obligations.