BlackRock’s Koesterich sees energy stocks as top portfolio diversifier

The 60/40 portfolio, that trusty warhorse of institutional investing, is looking increasingly like a horse with a limp. Russ Koesterich, the portfolio manager behind BlackRock’s Global Allocation Fund, is making the case that bonds have essentially stopped doing the one job investors kept them around for: protecting portfolios when stocks stumble. His preferred replacement? Energy stocks, which he says now offer the diversification benefits that Treasuries and gold used to provide. The bond problem Koesterich’s argument rests on a pretty uncomfortable data point. The 30-year US Treasury yield recently climbed to between 5.25% and 5.32%, levels not seen since 2007. For context, yields move inversely to bond prices, so rising yields mean bond holders are watching the value of their holdings erode right alongside their equity positions. The correlation between bonds and the S&P 500 has reached roughly 0.45, according to Koesterich’s analysis. In plain terms, bonds and stocks are increasingly moving in the same direction. When your hedge zigs every time your portfolio zigs, it’s not really a hedge anymore. Gold hasn’t fared much better. During a recent Middle East conflict that rat...