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Hybrid Stock-Bond Mutual Funds Suffering Worst Week in 17 Months

Both fixed income and equities tumbled this week.

by Sarah Ponczek and Lu Wang
(Bloomberg) --Coordinated selling in stocks and bonds is making life miserable for investors in one of the most popular asset allocation strategies: those lumped together under the rubric of 60/40 mutual funds.

Counter to their owners’ hope, that pain in one will be assuaged by the other, this week has seen both fixed-income and equities tumbling as concern has built about the pace of Federal Reserve interest rate increases. Funds that blend assets have borne the brunt, suffering their worst weekly performance since September 2016.

Take the DFA Global Allocation 60/40 Portfolio for example. The fund slipped 1.2 percent this week as of Wednesday’s close. If the losses hold, that will be its worst week in almost a year and a half.

“Rates are higher, that’s negative, and then interest rates are driving bond prices down and there has been weakness in the equity market on net over the last four or five days,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., said by phone. “Both elements of balanced funds are creating headwinds.”

The hit is across the board, with other funds that use the strategy taking punches. The BlackRock 60/40 Target Allocation Fund is having its worst week since September 2016 as well, and the Prudential 60/40 Allocation Fund its worse week ever, according to data compiled by Bloomberg.

--With assistance from Elena Popina.To contact the reporters on this story: Sarah Ponczek in New York at [email protected] ;Lu Wang in New York at [email protected] To contact the editors responsible for this story: Jeremy Herron at [email protected] Chris Nagi, Richard Richtmyer

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