Portfolio Construction
Investment portfolio insights
Trends in Portfolio Construction
Stay up to date on the latest portfolio trends with our Portfolio Construction team’s insights, which are fueled by nearly 12,000 portfolio reviews throughout the year.
The economy surprised on the upside in 2023, in stark contrast to the dire prediction of recession by many economists. The S&P 500 returned over 26% in 2023, mainly driven by the rebound of the technology sector. The U.S. as well as most of the global economy avoided a recession, in the face of cooling inflation and a belief in a soft-landing scenario. The Fed signaled that the trends were sufficient to project a shift to monetary policy easing in 2024, setting up market for a positive backdrop for 2024. The question continues to be how much of this is priced in.
A Common Composition of an Advisor-Created Portfolio
Source: FI portfolio solutions (9,456 Portfolio Reviews and Portfolio Quick Checks conducted between 1/1/23 and 12/31/23) and Morningstar.
To monitor key trends in advisors’ strategic allocations and rebalances as they react to a tough environment, we reviewed nearly 12,000 professionally managed investment portfolios in 2023 through our proprietary portfolio construction capabilities. Our analysis uncovers key themes playing out within each asset class that we believe will continue to be top of mind in 2024.
Average ETF Usage in Advisor Portfolios
We are seeing the highest level of ETF usage in 2 years driven by advantages like better tax efficiency, cost, and intraday liquidity. In 2022, 52% of advisors had some ETF allocation and that has risen to 56% in 2023. The average portfolio in 2023 includes 27% in ETFs—a 6% and 9% increase from 2022 and 2021, respectively. As ETFs gain steam, the binary lines are blurred. While index funds continue to be the most popular product amongst advisors, there is increased interest in active ETFs. In 2022, 13% of advisors had some allocation to active ETFs but in 2022, that proportion has increased to 21% in 2023. The average allocation to active ETFs amongst users is around 10%—signaling not only a growing interest in the product, but also in the variety of wrappers available.
We observed the average portfolio has:
All data points are based on Fidelity portfolio construction reviews and Portfolio Quick Checks (PQC), as of 12/31/23.
In conclusion
Inflation coming down is the main driver of market recovery. It makes the Fed more comfortable, which makes investors more comfortable. Contact Fidelity's portfolio construction guidance team to help you build strategic portfolios for this current market environment.
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Tune in to hear from our team on the outlook for inflation and the economy in 2024.
Find out more about alternatives and how allocating to these investments may help strengthen your clients' portfolios.
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Diversification does not ensure a profit or guarantee against a loss.
Past performance is no guarantee of future results.
ETFs are subject to market fluctuation, the risks of their underlying investments, management fees, and other expenses.
Stock markets, especially non-U.S. markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. The securities of smaller, less well-known companies can be more volatile than those of larger companies.
Although bonds generally present less short-term risk and volatility than stocks, bonds do contain interest rate risk (as interest rates rise, bond prices usually fall, and vice versa) and the risk of default, or the risk that an issuer will be unable to make income or principal payments.
Additionally, bonds and short-term investments entail greater inflation risk—or the risk that the return of an investment will not keep up with increases in the prices of goods and services—than stocks. Increases in real interest rates can cause the price of inflation-protected debt securities to decrease.
Alternative investments are investment products other than the traditional investments of stocks, bonds, mutual funds, or ETFs. Examples of alternative investments are limited partnerships, limited liability companies, hedge funds, private equity, private debt, commodities, real estate, and promissory notes. Some of the risks associated with alternative investments are: Alternative investments maybe relatively illiquid. It may be difficult to determine the current market value of the asset. There may be limited historical risk and return data. A high degree of investment analysis maybe required before buying. Costs of purchase and sale may be relatively high.