Investors seeking to boost returns in their 60/40 portfolio should look to what AllianceBernstein calls "the magnificent others." The firm thinks the traditional balance of 60% stocks and 40% bonds makes sense for investors, with the Federal Reserve expected to start cutting interest rates later this year, setting the table for a soft landing. The strategy underperformed the broader market in 2023: the S & P 500 surging more than 24%, while the iShares Core Growth Allocation ETF (AOR) , which mimics a 60/40 allocation, advanced nearly 13%.
While investors have been focused on "Magnificent Seven" Big Tech in the equity part of their portfolio, there are other names that are attractive — and they come with the added bonus of dividends, said Walt Czaicki, senior investment strategist at AllianceBernstein. "If you're finding companies that are giving you dividend growth rates of anywhere say from 10% to 12%, well north of inflation, that has a nice compounding effect," he said. "If you happen to get stock price appreciation along the way, from a total return perspective, that's a good combination.
" What makes these dividend-paying stocks appealing is that free cash flow is expected to grow roughly 7% over the next five to six years, he said. Plus, valuations are compelling, the strategist added. "That is something you would want to take advantage of now, especially if fed funds rates go down and money market rates go down," Czaicki said.
"As free cash flow goes up, as an invest.