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December 08, 2021 | Macro Insights

Advisor Portfolio Trends: Diagnostic For 2022

Debates about the future viability of the traditional 60/40 portfolio dominated portfolio construction conversations this year, with many investors wondering whether low-yielding bonds can still generate sufficient income and balance equity risk. Additionally, US equities in particular continue to play an outsized role in investment portfolios. Where the S&P 500 is likely to go from here is far from certain. What is certain, however, is that US large cap equities dominate the risk concentration in most advisor portfolios.

To monitor key trends in advisors’ strategic allocations, we have reviewed nearly 9,000 professionally managed investment portfolios through our proprietary GS PRISM™ portfolio analysis tool. Our analysis uncovers three key considerations, that we believe will continue to be top of mind in 2022 and potentially beyond:

  • Allocations to Core Equity (CE) in general—and US equities in particular—continue to drive most portfolio volatility.
  • Within US equities, the average portfolio remains under-allocated to US small caps.
  • Liquid alternative investments are heavily underrepresented in the average portfolio.

Let’s take a look at each of these more in depth, and suggest some steps investors might consider to mitigate the risk associated with overconcentration in US large caps, as well as harvest the benefits of increasing exposure to liquid alternatives.


Allocations to Core Equity (CE) in general—and US equities in particular—continue to drive most portfolio volatility.

In 2021, the average portfolio featured a 55% capital allocation to CE, which we define as US equities at all levels of market capitalization, plus developed-country large caps. That was up from 51.5% in 2016. This allocation drives around 78% of portfolio risk (Exhibit 1). Within the CE allocation, four-fifths of capital on average is allocated to domestic equities. This helps explain the daily fluctuations in portfolio value.

We believe investors can reduce this risk concentration by increasing their allocations to developed international equities. Looking at the capital allocation, our CE strategic baseline suggests a more balanced 70/30 split between US and developed international equities, compared to the current 81/19 split in the average portfolio. Tactically, our positive view on international equities for 2022 justifies a positive tilt in addition to our strategic view.


Within US equities, the average portfolio remains under-allocated to US small caps.

The average portfolio has an 89% allocation to US large and mid-caps and just an 11% allocation to US small caps. Our strategic asset allocation guidelines suggest an 84/16 split. Delving deeper on US large cap equities, we find that as much as a third of the average portfolio is allocated to this asset class, accounting for almost half of the overall risk allocation (Exhibit 1). To put this into context, consider that the top five firms in the S&P 500 represent almost 25% of the index. We believe this risk concentration should be carefully examined, as it may leave portfolios vulnerable to unintended volatility and potential downside risk.

We believe investors can potentially reduce their US large cap equity concentration by increasing allocations to US small caps and the unique risk premium of this asset class. Tactically, we hold a positive view on US small caps as we look into 2022 and beyond. What’s more, this asset class has historically been the best performer during periods of rising US rates.

Exhibit 1: Core Equity and US Large Cap play a dominant part in terms of risk contribution for the average portfolio

Source: Goldman Sachs Asset Management SAS Portfolio Strategy Group. For illustrative purposes only. This does not constitute a recommendation to adopt any particular asset allocation.


Liquid alternative investments are heavily underrepresented in the average portfolio.

The average portfolio allocation to liquid alternative investments—investments in public vehicles with characteristics similar to hedge funds—has been cut in half over the last five years, falling from 5% in 2016 to 2.5% in 2021. We define alternative investments as a group including multi-strategy daily liquid alternatives, hedge funds and hedge fund-like strategies. Furthermore, we found that a striking 57% of retail advisor portfolios today lack exposure to these assets.

In our view, investors should consider expanding their strategic allocations to alternative investments to better address moderating equity returns and rising interest rates. Alternative investments are diversifiers that provide access to less traditional financial instruments and asset classes with higher degrees of flexibility, such as the ability to go short, and lack of exposure to traditional benchmarks. Liquid alternatives may reduce the effects of severe equity drawdowns and provide a differentiated source of returns during rising rate environments.

To sum up: our analysis shows that looking at the capital allocation side of the equation alone does not provide enough information to understand what is truly going on in portfolios. Instead, investors should consider analyzing both capital and risk allocations. As we enter 2022 we believe advisors could consider adjusting US large cap equity allocations by “moving out” in geography, “moving down” in market cap, and “moving forward” into liquid alternatives. As Miguel Cervantes famously warned, “don’t put all your eggs in one basket.” That’s especially good advice when it’s not clear what lies ahead.

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About the Author

Davide Andaloro, CFA

Davide Andaloro, CFA

Senior Market and Portfolio Strategist, Strategic Advisory Solutions, Goldman Sachs Asset Management

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