Advisors moved away from traditional 60/40 portfolios last year and moved more toward either riskier or more conservative allocations, according to Fidelity.
Advisors move away from middle-range, moderate portfolios most commonly constructed with a 60% equities/40% bonds mix, to both more conservative and more aggressive mixes, according to Fidelity Institutional’s 2020 report, “Trends in Portfolio Construction,” released Friday. According to the report, there was a reduction in moderate and moderate aggressive portfolios from 65% to 59%, an increase in conservative portfolios from 11% to 15% and an increase in aggressive portfolios from 13% to 15%.
The change reflected the unusual nature of 2020, which prompted different responses at various times from investors and advisors, said Matt Goulet, senior vice president for portfolio solutions at Fidelity Institutional.
In another trend identified by the report, advisors were reaching out to others for portfolio construction because clients are demanding more of their advisors, Goulet said in an interview Monday.
“The role of the financial advisor is becoming increasingly complex, and the expectations of clients, particularly younger clients, are growing,” Goulet said. “The clients expect cash flow analysis and projections about whether they are on track for retirement, as well as other services. As advisors seek to meet these clients’ needs, they have less time to work on portfolio construction.”
This is “a mega trend” that will continue, he predicted.
The 2020 report was based on an analysis of 4,000 portfolios Fidelity consulted on during the year compared to less than 2,000 two years before. Fidelity offers a range of services for portfolio construction depending on the advisor’s needs, Goulet said.
There also was a continued high allocation to technology, which increased from 20% in 2019 to 23%, as well as domestic bias for this asset class, which increased from 70% to 73%.
Overall, there was a slight uptick in international allocations in the fourth quarter as advisors looked to emerging markets for returns, the report said.
For fixed income, which continued to suffer from low interest rates, the report showed there was a 4% higher allocation to high quality, investment grade fixed income, which increased from from 72% to 76% in 2020.
The average portfolio had 13 different holdings managed by an average of six asset managers.
The next analysis of portfolio construction will be reported in May based on the first months of the year and will show if the trends set in the unique atmosphere of 2020 will be continued, Goulet said.