Investment portfolio insights
Trends in Portfolio Construction: Q2 2023
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.
It has been a tale of 2 starkly different quarters to round out the first half of 2023. In the first quarter, we saw signs of stress in the US and European banking systems, escalating fears that a recession may be on the horizon. While in Q2, continued global economic expansion amid generally disinflationary trends has led recession odds to drop. The debt ceiling crisis was averted and better than expected earnings drove positive returns in the quarter, led by large cap growth stocks. CPI continues to fall, and the Fed paused in June as it waits to see the effects of monetary tightening. However, an inverted yield curve and tighter credit conditions mean that the late cycle outlook remains mixed. While there was some talk of a pause in rate hikes, a resilient US economy has caused the Fed to continue to commit to a hawkish stance in future months. The rate of inflation is decelerating but greater economic slowing may be necessary to bring down core inflation sustainably. The Fed and other central banks are likely nearing the end of their hiking cycles. Globally, Europe has carefully avoided a recession, but China’s reopening momentum is faltering. The question continues to be how much of this is priced in amidst these challenging dynamics.
To monitor key trends in advisors' strategic allocations and rebalances as they react to a tough environment, we have reviewed over 2,100 professionally managed investment portfolios in Q2 of 2023 through our proprietary portfolio construction tools. Our analysis uncovers key themes playing out within each asset class that we believe will continue to be top of mind in 2023 and potentially beyond.
We observed the average portfolio has:
Inflation coming down is historically the main driver of market recovery. It tends to make the Fed more comfortable, which may make investors more comfortable. Please reach out to our portfolio construction guidance team to help you build portfolios for this new market environment.
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1. FactSet, Fidelity Investments, as of 6/30/23.
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, bond, 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.