Portfolio allocations to growth have been rising as advisors anticipate a soft landing in the economy, according to an analysis by Fidelity Investments. 

Fidelity Investments' Q4 2023 Portfolio Construction Insights report found that allocations in growth increased to 38% in the fourth quarter, compared with 33% in the first quarter. The fourth-quarter level is similar to what it was in 2022, when it was around 39%, Fidelity said.

The allocations to growth demonstrate that advisors are anticipating a soft landing for the economy, said Paul Ma, lead portfolio strategist at Fidelity Institutional.

“Advisors are diversifying their portfolios to care for a variety of potential economic outlooks,” he said. “Soft landing projections could signal the potential for growth allocations, as a less volatile market environment may spur better growth opportunities for different businesses.”

The analysis also found that advisors are gravitating toward less risky products in fixed income. The average allocation was 79% to investment grade bonds in 2023, Fidelity found.

“Advisors are being very careful with their positioning on the bond side, which means they are being intentional in how they are balancing their risk,” Ma said. “Investment grade bonds may help offset risk being taken on the equity side of the portfolio.”

The report found that about 16% of the 11,000 portfolios the firm looked at had a certain level of exposure to alternatives, with the average allocation being about 5%. That is slightly lower than the industry average exposure of 5.8% as reported by Cerulli.

“Because investor goals vary so greatly, some may feel that public equities or fixed income aren’t providing the diversification required to meet those goals,” Ma said. “That’s where alts can be an interesting asset class to explore.”

With the volatility of the past few years still fresh on peoples’ minds and the potential for more turbulence ahead, advisors will have to work hard with their clients to keep them from making an emotional decision about their investments, he added.

“I think an advisor recognizes that they’re not really trying to manage the investment per se,” he said. “They’re trying to manage the investor because when investors experience a volatile portfolio performance, they tend to [want to get out of the market.]”

Unfortunately, that could mean an investor exits their portfolio at the wrong time and will not be there to reap any benefits of a turnaround, Ma said.

“The grandma who checks her statement every 30 years ... those are the accounts we find have done the best,” he said. “People who check their statements every single day are usually the ones emotionally or behaviorally that can’t help themselves but to do something at the wrong possible time.”