Managing Director, Head of Portfolio Insights
Vice President, Portfolio Insights Specialist
Something is shifting beneath the surface of the average portfolio. It isn't happening all at once, but the data tells a clear story of quiet, deliberate repositioning. Our Portfolio Insights Specialist team has been tracking average category allocations across portfolios over the past 12 months, and what we're seeing is a gradual move away from areas that have led for years and toward parts of the market that have long played a supporting role.
Equities
As we continue into the second half of 2026, Large Value and Large Growth allocations have migrated toward 12-month lows. Large Blend remains somewhat elevated. Taken together, portfolios are expressing less conviction on the edges of the style box and gravitating toward the middle, aiming for broader diversification across styles.
Mid- and small-cap allocations have trended upward toward the highest levels we've seen in the trailing 12 months, likely an attempt to diversify away from US large-cap concentration risk. While we commend the effort to increase diversification, given the historic concentration toward the US we’ve observed in portfolios, it's the uptick in international allocations that we view as particularly productive. Much of that movement has been directed toward emerging markets, which we contribute to the valuation opportunity. That said, developed international markets may represent an underappreciated complement, offering geographic diversification with generally less volatility than EM and favorable currency dynamics. International value can further diversify, historically showing among the lowest correlations to US large cap growth.
Fixed Income
Inflation, opacity on the direction of interest rates, and remarkably resilient equity markets have created an environment where many appear to be reshaping fixed income. Mainstay allocations like Intermediate Core and Core Plus have trended toward 12-month lows. Notably, that shift has not simply flowed into re-risking. High yield is also at 12-month low levels.
Short-term bond and multisector bond categories have absorbed some of the flow. It appears portfolios are keeping duration reined in should inflation persist and pressure long-term rates higher. The multisector allocations, in lieu of direct high yield, suggest that while there is appetite for risk within fixed income, a flexible manager who can tactically adjust exposure is preferable.
Shifting tides beneath the surface
Zooming out, a clear pattern emerges. Many evergreen categories sit at suppressed levels, yet very few are meaningfully elevated. Where are these allocations going?
The answer lies in thematic and alternative strategies, showing up in portfolios far more frequently as we've entered less familiar waters. Inflation-Protected Bond went from appearing in 4% of portfolios in January to 17% by end of June. Technology-focused funds jumped from 12% to 20%. Similar trends appeared in Long-Short Equity, Systematic Trend, and Commodities.
More broadly, alternatives are coming up in conversation with increasing regularity. We view them as a viable way to diversify beyond traditional public market risk, offering return streams that have historically behaved differently during periods of stress. The key is intentionality in how they are sized and integrated.
There is validation for incorporating these strategies given the current backdrop. However, the nuance with which they are deployed is paramount. They can complement traditional allocations, but practitioners should ensure they remain accents rather than supplant the mainstay core positions that anchor a portfolio through full market cycles.
If it's been a while since you've taken a holistic look at your portfolio construction, now is a good time. Ensuring your allocations are well positioned for what's ahead, with thematic ideas enhancing rather than overtaking the foundational framework, can make a meaningful difference when it comes to meeting your clients future goals.