Advisors proved their worth in managing portfolios during this unusual year, according to Invesco, which studied the performance of several hundred advisor-managed portfolios from December 2019, before the pandemic hit, to October 2020.
Invesco’s Portfolio Advisory Group studied 633 U.S. based portfolios, benchmarking them not only to an index but to other advisor portfolios, from December through March, labeled as “Pre-COVID,” and from April through October, labeled as “Post-COVID,” meaning after the pandemic started. (It’s far from over.)
“What we found was pretty favorable,” said Mo Haghbin, chief commercial officer and chief operations officer of Invesco Investment Solutions. The study found a “meaningful shift” in the post-COVID portfolios, to areas of the market that outperformed — from international equities in developed markets to U.S. equities and from financials, energy and industrials to technology and health care, along with increased allocations to large-cap and growth stocks.
Equity allocations increased overall, funded from bond redemptions. The remaining bond allocations shifted from investment grade and Treasurys to high yield.
“While advisor portfolios have fared relatively well post-COVID by being U.S.-centric and defensive, this period has not followed the path of a traditional economic recovery out of a recession,” Haghbin said in a statement.
Usually small-cap and value stocks outperform in economic recoveries but that did not happen during the period after the pandemic had started, explained Haghbin. In the past month, however, small-caps have outperformed large-caps and value stocks have bested growth, though to a lesser degree.
Haghbin’s advice to advisors: “Take a look at portfolios now. The vaccine news has ignited record-setting reversals of market leadership.”
Indeed, in the past month energy has outperformed health care, financials and tech, looking at the performance of those iShares sector ETFs, but tech continues to outperform financials.
Haghbin told ThinkAdvisor that advisors, who typically have a home bias and overweight U.S. stocks, should consider adding more non-U.S. investments. “The U.S. equity sleeve currently is larger than usual,” he said.
He also suggested that advisors reevaluate factors and sectors, noting the overconcentration of health care stocks in advisor portfolios. They should consider more investments in economically sensitive industries such as financials and consumer discretionary, Haghbin said.
For the bond allocation of portfolios, he recommended that advisors “think about diversification in ways outside fixed income” because bonds are not providing the ballast they traditionally do due to their extremely low yields. Haghbin suggested adding commodities and other alternatives.
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