Fidelty Finds U.S. Bias In Advisor Equity Allocations

Investors have slightly shifted their stock allocations to a U.S. bias in the first half of 2026, slightly increasing their U.S. equity allocations and lowering international exposure, according to a snapshot of portfolios taken by Fidelity.

The custodian looked at 5,579 advisor portfolios in the first half of the year and found that while investors were not necessarily more defensive, they were repositioning their risk and using ETFs more.

Even amid economic uncertainty and volatility, investors were not de-risking so much as reallocating risk and positioning their portfolios with more things like liquid alternatives to hedge their portfolios, Mayank Goradia, head of portfolio construction at Fidelity and the CIO of Fidelity Institutional Wealth Advisors, said in a webinar on Friday.

“Given political uncertainty, evolving inflation expectations, real volatility, and periodic swings around AI related investments, many people expected portfolios to become meaningfully more defensive,” Goradia said. “That’s not what I observed. Average equity allocations remained around 72%, while fixed income remained approximately 23%, which is near the low end of the range we have observed during the past two years.”

Twenty-seven percent of the portfolios had zero exposure to international equities. “That, to me, is a huge home country bias,” he said.

Fidelity said that among the portfolios it reviewed, U.S. equities rose from 77% in the first quarter to 79% in the second quarter, while international equities fell from 23% to 21% in the same period. International allocations had been 27% of the sleeve in 2021.

ETF adoption also accelerated, Fidelity said, with the average allocation to index funds rising to about 42% in the second quarter, up from 39% in the first quarter and about 30% over the prior two years.

On the bond side, investors had become a bit more conservative. Investment-grade exposure rose from 81% to 83% of the fixed-income exposure in the second quarter, while high-yield exposure fell from 19% to 17%. Duration shortened from 4.71 to 4.38 years.

Among the questions raised in the webinar was whether the 60/40 portfolio is dead. Goradia said he didn’t think so, though he said that the framework was being upgraded and renovated, partly because of the inflation experience of 2022.

“Investors learned that stocks and bonds can decline simultaneously when inflation becomes a dominant market risk,” Goradia said. “So what advisors appear to be doing today is broadening the sources of diversification inside their portfolio. That includes greater use of multi-sector fixed-income products, alternative strategies, and outcome-oriented solutions. So in my opinion, the objective remains exactly the same. Growth, income, risk management. The difference is that the advisors increasingly want more than two return engines powering their portfolio.”

Goradia said that advisors are turning to alternative investments more as a way to hedge strategies and provide insurance for portfolios with items like liquid market neutral strategies.

“On average, about 10% to 20% of the advisors who are engaging with us have some exposure to alts. And within the liquid space, like I said, it is predominantly within the hedged market neutral category, which makes sense. They’re using that as an insurance policy,” he said.

Also speaking on the webinar was Brad Pineault, head of capital market strategies, who spoke about the impact of artificial intelligence on the economy and whether its widespread adoption justified continued faith in a bullish outlook for the economy. The question is whether the productivity and efficiency gains of the technology justify the enormous investment that companies are making, including the massive capital expenditure build out by the so-called hyperscalers.

“To us, the question we’re asking is to what extent does this allow the economy to grow through productivity gains? … Should that happen, earnings for the overall financial market should continue to broaden. And then obviously should be a much broader pillar of support for economic and market gains,” he said.

He noted that the predicted 30% earnings growth for the S&P 500 in 2026 conflicts with consumer sentiment.

“When you think about that ultimate disconnect, the health of the financial market is predicated by the earnings, right, and the fundamentals of a number of large publicly traded companies, right? And that could be different from the household that’s feeling the weight of higher inflation and the higher borrowing costs.”