How to weather the next market shock
Investors should look beyond the traditional 60/40 equities-and-bonds mix for building portfolio protection as rising yields weaken the diversification benefits of long-dated U.S. Treasurys, according to Julian Howard, chief multi-asset investment strategist at GAM Investments. Speaking to CNBC’s “Squawk Box Europe” on Monday, Howard urged investors to “think carefully” about diversification heading into the final quarter of 2026, explaining that GAM has taken profits during the long equity rally in favor of strengthening the defensive side of its portfolios. “Other diversifiers are available beyond U.S. Treasurys,” he said, pointing to shorter-dated Treasury bills, gold, insurance-linked securities and mortgage-backed securities as four key portfolio diversification trades. “Whatever your view on the rally is, you have to make sure the rest of your portfolio, in a multi-asset context, is going to be robust,” Howard said. “U.S. Treasurys are probably not going to be the ideal offset — They’re long duration, yields are going up, there’s a lot of momentum there.” “So what’s really, really reliable and simple? Again, it’s the short-dated part of the market [that is] very, very appealing.” “There’s risk in long duration, yields have been going up,” Howard said. At the short end, investors can secure a “nice 4% risk-free, duration-free,” he added. The yield on 2-year U.S. Treasurys was up by 1 basis point early on Tuesday at 4.937%. Yields on 6-month U.S. Treasury bills were up 2 basis points to 4.446%, while 3-month T-bill yields were 2 basis point higher at 4.224%. “That’s quite a nice diversifier — it’s going to work if something goes wrong in the market.” US6M 1M mountain U.S. 6-Month Treasury Bills. That can be part of a diversification book beyond traditional fixed income plays, Howard said. “There are other things that you can put into a portfolio that aren’t U.S. Treasurys, thinking beyond 60/40.” Here, he favors gold and insurance-linked securities, including catastrophe bonds, which offer a “good yield.” Meanwhile, mortgage-backed securities are also far less sensitive to Treasury-market swings, he explained. Howard remains constructive on equities, adding that investors should neither enter year-end “massively overweight” nor abandon a market he sees as having “serious momentum.” The search for alternatives comes as the historically negative correlation between equities and bonds has become less dependable amid supply shocks, inflation pressures and bond market volatility. Earlier this month, Fabio Osta, managing director and head of the alternatives specialists team, EMEA wealth at BlackRock , said markets are “moving away” from the traditional 60/40 portfolio mix, telling CNBC that private markets offer a “new era” of growth opportunities, fueled by AI.
