The 60/40 Portfolio Under Pressure: What Alternatives to Bonds Are Available to Investors in Switzerland?
Blog Article by Patrick Spichiger,
CEO
Why the Traditional 60/40 Portfolio Has Had Its Day – and How Bonds Can Be Substituted
“Bonds are unattractive in the current environment” – this statement is currently on everyone’s lips, both in investment committees and in the financial press. We share this view. The traditional 60/40 portfolio – 60 per cent equities and 40 per cent bonds – is based largely on the assumption that bonds provide ongoing income and diversify equity risk within a portfolio. Today, however, bond markets are characterised by low interest rates, high and, according to the OECD Global Debt Report 2026, further rising government debt, and a positive equity-bond correlation. Bond investors today receive lower returns while facing increasing risks. Taking inflation into account, returns remain close to zero in real terms. After deducting costs, we often see expected returns in negative territory.
Two circumstances are particularly striking:
1. A surprisingly high proportion of investment professionals share this view, yet draw only limited conclusions from it for their strategic asset allocation: in our experience, the traditional “balanced portfolio” remains widely used and – constrained by the corresponding investment regulations – continues to allocate significant proportions to bonds as standard. Within the tradition-bound structures of asset management, many market participants have little room for manoeuvre.
2. Even those market participants who adjust their allocation frequently resort to the same established alternatives and have a limited view of the new opportunities available in today’s investment universe: dividend equities, high-yield bonds, real estate and savings accounts are the commonly cited classics for addressing these challenges. This falls far short of taking full account of today’s investment opportunities, leaving attractive diversification opportunities unused. Anyone considering substituting bonds today must move away from tradition and seek broad diversification across a range of asset classes, including newer ones, in the current market environment. This is precisely what we focus on every day, and in this article we show how we specifically substitute bonds within our mandates.
A Look Back: Why Did the 60/40 Portfolio Emerge in the First Place?
The traditional 60/40 portfolio, consisting of 60% equities and 40% bonds, was regarded for decades as a cornerstone of both institutional and private wealth management in Switzerland and beyond. This popularity was no coincidence, but rather reflected an environment that played to the model’s strengths. In an interest-rate environment that was largely stable and predictable over long periods, bonds generated attractive coupons and ongoing interest income and served as a reliable anchor for returns and stability. Crucially, the correlation between bonds and equities was low to negative for extended periods: when equity markets came under pressure, bond prices tended to rise, offsetting part of the losses and effectively providing a built-in form of “insurance”. There were also tangible practical advantages: the model was simple, transparent, cost-effective and liquid. It was just as easy to communicate as it was to incorporate into standardised investment solutions. Taken together, all these factors made the 60/40 model the obvious answer for decades to the question of sensible portfolio construction. Today, however, the wealth management industry faces the challenge that the structural conditions on which this model was based have fundamentally changed.
Why We Believe the 60/40 Portfolio Model Is Not Suitable for the Future
The conditions of the past can hardly be compared with today’s environment. Various factors have changed the role of bonds within a portfolio. In our view, the most important points are as follows:
1. Rising Government Debt
The development shown below, using US government debt since 1975 as an example, demonstrates that government debt has increased in recent decades relative to gross domestic product. The same applies to many other countries. This development shifts the risk profile of supposedly safe government bonds to the detriment of investors. Where debt ratios are high and continue to rise, investors bear greater credit risk than the “risk-free” label suggests. A prominent example is the downgrade of the United States by Moody’s in May 2025, when the last of the three major rating agencies withdrew the country’s top AAA rating.
US government debt as % of GDP (Source: FRED)
2. Low Interest Rates
Switzerland is well known as a prime example for low interest rates. It remains a safe haven, but offers hardly any return in exchange. As at 14 August 2026, ten-year Swiss Confederation bonds yield 0.43% p.a. and therefore generate hardly any positive return after taking inflation and costs into account. This is not only observable in Switzerland. The chart below shows a clear trend of declining nominal and real yields on US government bonds, with increasingly frequent periods of negative real yields.
Nominal and real yield on 10-year US government bonds (Source: FRED)
3. Positive Correlation:
Equities and bonds are increasingly moving in the same direction, particularly during inflation-driven periods of market stress. This removes precisely the function for which bonds were included in portfolios for so long – diversification against equity risk.
This can be seen clearly in the historical equity-bond correlation shown below, using the United States as an example. During the roughly two decades preceding 2022, the correlation between the two asset classes was negative for much of the period. When equities fell, bonds tended to rise, providing the desired “hedge” and earning the 60/40 model its reputation. Looking further back, however, it becomes clear that this inverse relationship is not a law of nature. During the inflationary 1970s and 1980s, and at times during the 1990s, the correlation was positive for extended periods: equities and bonds moved together. Since 2022, it has once again turned positive. Whether bonds are suitable as a diversifier therefore depends to a significant extent on the macroeconomic regime.
Rolling correlation between US government bonds (US Long Treasury Index) and US equities (S&P 500) based on total returns between January 1975 and July 2026 (Source: FRED)
Conclusion:
The foundation on which the 60/40 portfolio was built has been weakening for some time. Investors who continue to hold bonds today to the same extent and with the same expectations as in the past are choosing lower interest income, higher default risks and less portfolio diversification – none of which are positive factors.
This raises a legitimate question for investors: how can bonds be effectively substituted within a portfolio?
Bond Substitution – But With What?
We have explained what the 60/40 portfolio is, why we at Zeltner & Co, along with many other investment professionals, consider it no longer appropriate in today’s environment, and which solutions are commonly cited in response to these challenges. In our view, partial substitution with dividend equities, real estate or increased liquidity does not go far enough in the current market environment and does not represent a comprehensive and attractive investment solution.
In our view, robust substitution relies on several broadly diversified alternative investments with a demonstrably low correlation to traditional equity markets and lower volatility.
Real estate, precious metals such as gold and silver, private credit or, in smaller allocations, cryptocurrencies are among the asset classes frequently used as alternative investments. Such building blocks are valuable in providing a broader foundation for a portfolio, but they by no means exhaust the potential of alternative investments.
At Zeltner & Co, we make use of the innovations of recent decades and the investment opportunities they have created:
For example, we consider royalties to be an interesting alternative source of returns. They generate income from licensing and usage rights, such as those arising in the music, pharmaceutical, media or natural gas sectors. Royalty investments allow investors to participate in cash flows generated by these licensing and usage rights. Their performance therefore depends on actual consumption and usage behaviour rather than stock market performance. It is only through business models that have emerged in recent years, such as music and film streaming, that this asset class has developed attractively for investors – today, it should be evaluated rather than simply overlooked.
Cat bonds follow a similar logic, but derive their returns from an entirely different source. These so-called catastrophe bonds are linked to the occurrence of insurance events such as hurricanes or earthquakes. Their returns are determined by whether such events occur or do not occur, which is why they have historically exhibited a low correlation with financial markets.
Performance of Swiss Re Cat Bond Instituti and Bonds (Core Global Aggregate Bond UCITS ETF) over the Past 5 Years (Source: iShares and GAM)
The chart above shows that global bonds recorded significant losses in value over the past five years, while Cat Bonds, as illustrated by theGAM Swiss Re Cat Bond Instituti, generated positive returns. The difference in performance underlines the fact that their return drivers are largely independent of developments in bond and capital markets and can therefore make a valuable contribution to portfolio diversification.
We also see an attractive niche, for example, in direct financing for Swiss investors or companies – offering uncorrelated and attractive returns in Swiss francs and benefiting from significant excess demand for financing solutions.
Finally, hedge funds play a particular role. They have, to some extent, acquired a poor reputation and are often broadly perceived as highly speculative. In reality, however, they represent a very large and extremely heterogeneous asset class. This can be seen in some of the approaches within this spectrum. Global macro strategies, for example, focus on overarching economic developments such as interest-rate, currency or economic trends. Market-neutral strategies, in turn, hold long and short positions in approximately equal proportions and aim to generate returns irrespective of market direction. Arbitrage approaches, by contrast, exploit small price differences between related securities. Precisely because such strategies are designed to perform independently of the direction of equity markets, they can make a valuable contribution to diversification and generate regular returns. They therefore also contribute to the substitution of bonds and form an important pillar of this approach.
Not Just Talking, but Acting: Implementation in Our Mandates
Observing the market and developing convictions is one thing; consistently implementing them within client mandates is another. For us, this means specifically that we do not regard alternative investments as a tactical addition, but systematically and comprehensively integrate them into the strategic asset allocation of our wealth management mandates. Both our Core Strategy and our Cash Flow-Driven Strategy incorporate alternative investments as a permanent structural building block rather than continuing to rely on a traditional equity-bond framework.
As a boutique, we have deliberately developed access to asset classes that are difficult to access for private investors and even for many institutional investors – from Royalty Funds and Cat Bonds to direct investments in physical industrial metals and direct financing. As our Portfolio Manager Mirjam Stalder has already explained in the interview on Zeltner & Co’s positioning relative to banks, this access and the move away from the traditional equity-bond structure in favour of genuine diversifiers is, for us, a key differentiating factor as an independent asset manager.
Ultimately, what matters is that our market assessment is actually reflected in the portfolio and creates value for our clients: talking and analysing alone is not enough; convictions must be reflected in concrete portfolio implementation.
Frequently Asked Questions About Bond Substitution
What Are Cat Bonds?
Cat Bonds, also known as catastrophe bonds, are securities issued by insurance and reinsurance companies to transfer part of their catastrophe risks to the capital markets. In return, investors receive attractive coupons. A loss occurs only if a previously precisely defined catastrophe event actually takes place, such as an earthquake or a hurricane of a specified magnitude in a defined region. Returns therefore depend on insurance events rather than economic developments or equity market performance.
Are Bonds Worthless Today?
No, bonds are not worthless. However, their risk-return profile has deteriorated noticeably. Historically high debt levels, unattractive real yields and an increasingly positive correlation with equities significantly restrict their traditional role as an anchor of stability and diversification within a portfolio. Bonds certainly remain a component of wealth management, but no longer to the same extent and no longer with the same function as they had only a few years ago.
What Are Alternative Investments?
Alternative investments comprise asset classes outside the traditional equity and bond markets whose performance typically exhibits little or no correlation with traditional financial markets. These include, among others, Royalty Funds, Cat Bonds, physical industrial metals and other real and tangible asset investments. Their benefit for investors lies in genuine portfolio diversification, as their performance is driven by factors that are largely independent of traditional capital markets.
What Is the Minimum Investment for Efficient Bond Substitution?
Within our wealth management mandates, we at Zeltner & Co have created highly efficient access to alternative investments. This means that bonds can be broadly diversified and fully substituted even at an early stage.
A key component of this is our Stable Return AMC, which focuses on alternative investments and provides access to a diversified selection of Hedge Funds, Music Royalties, Cat Bonds and other alternative investment strategies. Many of these investments would only be directly accessible to investors with significantly higher minimum investment amounts. By pooling them within our structure, access to the Stable Return AMC is available from a minimum investment of CHF 50,000.
This enables bond substitution to be implemented efficiently and with broad diversification even for smaller investment amounts. At the same time, the focus is on stable returns with low volatility, without requiring high minimum investments in the individual underlying investments.