“The total value of Dutch securities holdings reached nearly 3,500 billion euros in 2024.” It’s one of those headlines—this one from the Dutch Central Bank (DNB)—that most investors overlook, let alone actually read. But behind that enormous figure lies a world that once again shows how deeply entrenched the traditional investment industry remains in an outdated mantra.
The chart below from DNB shows how that massive amount of investment capital is allocated. And even though I know what to expect, it still never fails to shock me. Nearly 1,400 billion euros is invested in “Debt securities,” or bonds. That makes bonds the largest investment category according to DNB’s classification, accounting for exactly 40 percent of the portfolio. Coincidence or not, it proves that Dutch investors are still clinging to the traditional “60/40” mindset.
Worse still, according to DNB, more than 1,100 billion euros is invested in the category “Participations in investment funds.” And a good portion of that is likely in bonds too—especially considering that the overall size of Dutch investments is relatively large, “partly due to the significant holdings of Dutch pension funds.” And those, as we know, are unconditionally in love with bonds.
Let’s assume that the “Participations in investment funds” category also follows the 60/40 rule. That is, 60 percent in equities and 40 percent in bonds. Run the numbers, and you end up with a total bond allocation of 53 percent for Dutch investors. That’s more than half.
Ouch!
If you read my columns regularly, you probably know what’s coming next. I have never been a fan of bonds—especially not for the long run. Sure, we’ll eventually hit a recession or a crisis and bonds will perform well temporarily. But with structurally low interest rates and higher inflation, don’t expect real wealth growth.
The fact that, after more than five years of historically poor performance, bonds have not been meaningfully reduced in favor of other, more diversifying investments is still astonishing. From an investment perspective, at least. From a business model perspective, it’s a bit easier to understand why traditional investors refuse to budge.
Below I’ve included the annual returns for three portfolios. The first reflects how the Netherlands is currently invested based on DNB’s data. The second and third are variations of the traditional 60/40 portfolio—one with 40 percent gold and the other with 40 percent commodities.
Interestingly, DNB’s data also reveals that Dutch investors are extremely focused on domestic investments. So in terms of “home bias,” our score isn’t great. Nor is DNB’s, for that matter. They write: “It’s notable that the picture looks quite different for listed equities: almost three-quarters (74 percent) of these are held in companies outside the euro area.” Uh, Europe only makes up around 20 percent of the MSCI World Index. So it’s completely logical that a large share of equity investments are outside Europe.
Back to the chart. In none of the last five years shown in the DNB data did the traditional 60/40 portfolio deliver the best return. In three out of those five years, it actually landed in last place. Cumulatively, the return of the traditional 60/40 portfolio came in at 45 percent—entirely thanks to equities. Bonds delivered a solidly negative return. Notably, the home bias in Dutch bonds didn’t help either, as they performed five percentage points worse (minus 15 percent vs. minus 10 percent) than euro-area bonds over the past five years.
With a 60/40 portfolio of equities and gold, the total return was 85 percent (!) and with commodities it came in at 71 percent. The commodity return was largely driven by gold’s spectacular rise. It’s worth noting that this performance gap would’ve been even wider if I hadn’t used a 40 percent base allocation, but had instead replaced the full estimated 53 percent in bonds.
Yeah, but risk
A 40 percentage-point return difference over a five-year period is massive. That’s not something you just catch up on later. And five years is long enough for investors to start asking critical questions—either to themselves or to the parties managing their money.
The go-to answer to those questions will likely be “risk.” But that excuse doesn’t hold up anymore. The realized volatility (based on weekly data) of the traditional 60/40 portfolio is 11 percent. The volatility of the portfolio with 40 percent gold is 12 percent, and the one with commodities is 14 percent. Especially compared to the alternative with gold, the risk difference is marginal. That’s because bonds have actually become more volatile in recent years, while other investments like equities and gold have remained fairly stable.
Breaking free
Yes, I know the past five years have been exceptional—high inflation, interest-rate-sensitive pension fund obligations, and so on. But what is the fundamental investment argument, in a world full of debt, structurally low interest rates, higher and more volatile inflation, and rising geopolitical tensions, for not even considering other asset classes?
At least, that’s the conclusion I draw from examining the makeup of the Dutch investment portfolio. Dutch investors, like their counterparts in most other countries, are stuck in fixed income!
Jeroen Blokland analyzes striking, timely charts on financial markets and macroeconomics in his newsletter The Market Routine. He also manages the Blokland Smart Multi-Asset Fund, which invests in equities, gold, and bitcoin.