Business Insider Edition
The 60/40 portfolio is a foundational investing strategy, but thanks to AI, it might be time for a revamp.
Torsten Slk, Apollo Global Management’s chief economist, said the 60/40 allocation 60% in equities and 40% in bonds doesn’t offer a diversified portfolio in the AI era.
“Namely, AI is everywhere in my equity portfolio and now it’s actually also everywhere in my bond portfolio,” Slk said.
“One thing that we have learned in finance in the last 15 years is that you should make sure that you are invested according to certain factors and suddenly we all wake up and we are all exposed to one factor and one factor alone,” he explained.
The AI trade has been a key driver of the record-setting bull market since late 2022.
The top 10 largest companies by valuation made up roughly 40% of the S&P 500 weight and that was before SpaceX’s record-breaking IPO.
“The S&P 500 is no longer a diverse set of stocks,” the economist said, adding, “It really is a very big bet on AI.”
Investors portfolios are exposed to AI across both equities and fixed income. Slk said that means it’s time for a new iteration of the 60/40 portfolio allocation.
“AI is literally everywhere in your portfolios and AI is extremely important for the GDP outlook,” the economist said. “So, it becomes very critical to think about this in the form of what happens if AI is more successful and in the worst case, what happens if AI is less successful?”
He suggests the “new 60/40” is 60% AI-exposure, 40% non-AI investments.
It’s not just the stock market, though. The fixed income side is also heavily exposed to AI, as hyperscalers finance their data center build out through the debt markets.
The AI vs. non-AI split of investment grade credit debt issuance is nearly 50/50 this year, and AI has also dominated venture capital funding.
“It used to be the case that venture capital that was invention of prescription drugs, pharma, biotech, but now 87% of venture capital is also AI.”
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