60/40? A Second Opinion from GMO's Ben Inker

Join hosts Mike and Audrey in this first episode of Insight and Opinion as they explore the evolving relevance of the classic 60/40 portfolio strategy. They dive into Ben Inker's critical analysis from GMO¹, which highlights the '60/40 autopilot problem' and proposes the Benchmark-Free Allocation Strategy (BFAS) as an adaptive investment approach. They point out Jeremy Grantham’s 2009 piece, “Reinvesting when terrified,”² in which he discusses the need and the benefits of having a strong defense and being in a position to capitalize on large market dislocations. Learn about the significance of active management, emerging market debt, high yield bonds, and alternative risk premia. Discover why non-U.S. equities, particularly Japanese small cap value stocks, present untapped investment potential and how a dynamic, informed strategy with a focus on valuation awareness and alternative investment strategies that exploit the Value-Growth gap can enhance your investment outcomes in the forward long-term given what GMO describes as today’s most critical equity and fixed income concerns.

Timestamped Highlights (check out the transcript button above)

00:00 Introduction and Podcast Overview
00:45 Deep Dive into the 60/40 Portfolio
02:01 Benchmark Free Allocation Strategy (BFAS) Explained
02:27 BFAS in Action: Defensive Moves
03:21 BFAS in Action: Offensive Moves
04:15 Exploring Alternative Risk Premia
05:06 “Equity Dislocation” Strategy
06:10 The 60/40 Portfolio: Why It Remains Popular
06:46 Current Market Diagnosis: High Valuations and Narrow Credit Spreads
07:52 Opportunities Beyond the 60/40 Portfolio
08:07 Non-U.S. Equities: Japanese Small Cap Value Stocks
08:47 Deep Value Investing: Finding Hidden Gems
09:45 Exploiting the Value-Growth Gap
10:35 Key Takeaways for Investors
12:12 Final Thoughts: Embracing a Dynamic Approach

1. "A Second Opinion Is Just What the Doctor Ordered." 20 Oct. 2024, https://www.gmo.com/americas/research-library/a-second-opinion-is-just-what-the-doctor-ordered_9-24_insights.

2. "Reinvesting When Terrified." 21 Oct. 2024, https://www.gmo.com/americas/research-library/reinvesting-when-terrified_viewpoints.