The Advisor-Driven Shifts in Asset Allocation You Should Know About

Alts are gaining significant traction, according to a new report.


Getty Images

Advisors are jumping on the trend to include alternatives investments in client portfolios, according to a new paper by Advyzon, a software company used by wealth managers to run their businesses.

Using data from more 1,300 RIAs that use the company’s software, Advyzon found that the amount of money dedicated to alternative investments jumped from .5 percent to almost 3 percent between 2021 and 2022.

At the end of 2022, firms using Advyzon reported that stocks made up roughly 54 percent of their portfolios, compared to 60 percent in 2021. The rest of the capital in these portfolios was allocated to bonds (just over 20 percent), cash (6.7 percent), alternatives (2.7 percent), commodities (just over half a percent), and other investments (roughly 16 percent), some of which could also be alternative investments even though they were not tracked as such, according the report.

Advisors are adding alternatives because they add diversification and they’ve had strong returns. Stock and bond losses in 2022 only explain some of the changes to advisors’ asset allocation. As Brian Huckstep, CIO of Advyzon Investment Management Advisors, pointed out, “U.S. stocks were down 18 percent in 2022, while U.S. bonds were down just 13 percent. That math explains roughly half of the drop in equity exposure from 60 percent to 54 percent.”

According to the report, advisors also have been increasing their investments in large-cap stocks over the past few years. In 2019, firms had 29 percent in large-cap stocks, but this figure had jumped to 34 percent by the end of 2022. Between 2021 and 2022, small-cap stocks dipped slightly, while mid-cap stocks fell from 9 percent to 5.2 percent.

Firms also reduced their investments in international stocks last year, which fell to about 1 percent. U.S. equities have significantly outperformed the global indexes for more than a decade.

“International stocks seem to have lost their luster in the same way small-cap stocks have,” said Huckstep. “Both emerging and developed market equities have underperformed their U.S. counterparts for the past 20 years. That kind of performance gives investors pause. Not to mention [that] the globalization of U.S. companies decreases the need for international holdings as a diversification tactic.”

Advisory firms also pulled money out of cash. At the end of 2022, advisory firms allocated 6.7 percent to cash, the lowest allocation figure that Advyzon has recorded. Between 2015 and 2020, cash or cash equivalents had ranged between 10 percent to 14 percent.

Despite the increase in the advisors’ use of alternatives, there’s a lot of room for growth. According to Advyzon, the average institutional investor allocates roughly 20 to 25 percent of portfolios to alts.

Related Articles