Schroders examines how investors can strengthen portfolios if stagflation becomes a more persistent market backdrop. Rather than abandoning the traditional 60/40 portfolio, the paper argues that shortening bond duration, tilting toward quality and value equities, and adding alternative diversifiers have historically improved portfolio resilience during periods of weak growth and elevated inflation.
Adapting asset allocation to the risk of stagflation
Schroders
Duncan Lamont
Research
18 Pages
Key Takeaways
60/40 Still Works: Across 17 historical stagflation years since 1926, a 60/40 portfolio outperformed cash in 65% of periods versus 59% for equities alone.
Reduce Duration Risk: 1–5 year Treasuries yielded 4.0% with a 1.7% margin of safety, while 15+ year Treasuries yielded 4.9% but only a 0.4% cushion against rising yields.
Favor Defensive Styles: Since 1963, quality stocks outperformed more than 60% of the time during weak growth or rising inflation, while energy generated 12.0% annualized excess returns in stagflationary environments.
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