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Safe Equities: An Alternative Allocation to Bonds

Stephen H. Penman & Julie Zhu

Financial Analysts Journal2025https://doi.org/10.1080/0015198x.2024.2437982article
AJG 3ABDC A
Weight
0.37

What the paper says

An allocation of investment funds between equities and bonds, commonly a 60/40 split, is often advised to provide some protection from the risk in equities while still maintaining an equity exposure. However, in recent years when equity and bonds have been positively correlated, bonds have failed to provide the desired protection. This paper reports on an alternative: an allocation to relatively safe equities within a 100% equity portfolio. These safe equities, identified by fundamental analysis, provide a hedge in equity market drawdowns but with upside return: positive skewness with limited downside. An empirical analysis confirms this benefit, both in periods when equity and bond returns were positively correlated and when they were negatively correlated.

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https://doi.org/https://doi.org/10.1080/0015198x.2024.2437982

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@article{stephen2025,
  title        = {{Safe Equities: An Alternative Allocation to Bonds}},
  author       = {Stephen H. Penman & Julie Zhu},
  journal      = {Financial Analysts Journal},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1080/0015198x.2024.2437982},
}

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Safe Equities: An Alternative Allocation to Bonds

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.