5 Allocation Trends in Model Portfolios – Winter 2022
#1 – Enthusiasm for Growth Stocks Is Fading
Moderate risk portfolios continued to reduce the growth tilt that has been apparent over the last three years. Over the course of 2021, analyzed portfolios with a growth tilt dropped from 64% to 41% by the end of the year. Interestingly, while the percentage of portfolios with a value bias did increase to 27% in Q4 2021 from 17% in Q4 2020, most of the shift was to models displaying a blended (or no-style) bias. In mid-2021, moderate portfolios showed a modest increase in mid-caps and small caps, but by Q4 2021, that trend reversed.
Growth vs. Value Small/Mid/Large Cap Weights
Source: Portfolio Analysis & Consulting. The Portfolio Analysis & Consulting Moderate Risk Peer Group is based on 137 moderate portfolios submitted for review from July to December 2021. Data as of 12/31/2021.
Over the course of 2021, duration in the moderate model’s fixed income sleeves decreased from a high of 4.6 years in the first quarter to 4.3 years in Q4, a level last seen in mid-2020. Average credit quality declined as well, with the average portfolio dropping its allocation to investment grade bonds from a high of 78.7% in Q4 of 2020 to a low of 72.4% in Q4 2021. AAA allocations dropped from 44.2% in Q4 2020 to 37.8% in Q4 2021.
Credit Quality & Duration Over Time
Source: Portfolio Analysis & Consulting. The credit quality of a particular security, or the average credit quality of a group of securities, does not ensure the stability or safety of the overall portfolio. Credit quality reflects the highest credit rating assigned to individual holdings of the account among Moody's, S&P or Fitch; ratings are subject to change. The Portfolio Analysis & Consulting Moderate Risk Peer Group is based on 137 moderate portfolios submitted to Portfolio Analysis & Consulting from July to December 2021. Data as of 12/31/2021.
One of the more interesting trends in fixed income sleeves was the increasing allocation to bank loans at the expense of high yield. In Q3 2020, 68% of the below investment grade portion of fixed income sleeves was invested in high yield, with only 32% in bank loans. By Q4 2021 that trend had reversed, with 71% in bank loans and only 29% in high yield.
Average Portfolio Breakdown: High Yield vs. Bank Loans
Source: Portfolio Analysis & Consulting. The Portfolio Analysis & Consulting Moderate Risk Peer Group is based on 137 moderate portfolios submitted for review from July to December 2021. Data as of 12/31/2021.
In 2021, as rising headline inflation made the news, advisors increased their allocation to inflation-protected assets. Allocations to commodities and energy-related equities increased from 1.2% of the average moderate portfolio in Q4 2020 to 2.2% in Q4 2021.
Inflation-Protection Assets
Source: Portfolio Analysis & Consulting. The Portfolio Analysis & Consulting Moderate Risk Peer Group is based on 137 moderate portfolios submitted for review from July to December 2021. Data as of 12/31/2021.
While allocations to alternative assets increased during 2021, by the end of Q4, allocations were largely in-line with longer-term averages after a pronounced decrease in 2020.
Alternative Assets
Source: Portfolio Analysis & Consulting. The Portfolio Analysis & Consulting Moderate Risk Peer Group is based on 137 moderate portfolios submitted for review from July to December 2021. Data as of 12/31/2021.
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Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside resources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice. The data contained herein is the result of analysis conducted by Natixis Investment Managers Solutions’ consulting team on model portfolios submitted by Investment Professionals.
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