Breaking the barbell: a return to more active diversification?

A 15-year bull market has pushed US equity allocations to record highs, leading to widespread use of the “barbell” portfolio. This involves a heavy weighting to US stocks balanced by a big allocation to cash – with little in between. But with growing concerns about US equity valuations, normalising interest rates and the return of negative stock/bond correlation, is the barbell due a rethink?

Key takeaways

- US equities have propelled US financial wealth and equity allocations to all-time highs. While we expect a more modest continuation of this trend, we highlight the need for active diversification.
- Assets in US money market funds exceeded USD 7 trillion in November 20241 – a record – while bond allocations have shrunk to all-time lows.
- Our long-run analysis suggests that diversification into international assets, gold and commodities may increase risk-adjusted performance at times of decelerating US growth or accelerating US inflation.