Advisors Favor Large Caps, ETFs in Portfolio Strategy


In building portfolios for clients, financial advisors are leaning into large cap group domestic equities, developed markets for international equities, high-yield bonds in fixed-income allocations and liquid alternatives as a volatility buffer while increasingly using ETFs as a wrapper for those strategies.

That’s according to the latest analysis from Fidelity’s portfolio construction team based on analysis of 3,198 advisor-managed portfolios from April to June 2025.

“For the near-term, fundamentals look strong, such as corporate earnings. The only uncertainties are policy uncertainty as well as the consistent risk of inflation,” said Mayank Goradia, head of portfolio construction at Fidelity Investments. “It reinforces the need for diversification and discipline and regularly reviewing and understanding what’s inside portfolios. … Advisors are cautiously optimistic. They are leaning into growth but keeping one hand on the brake.”

Not surprisingly, ETF usage continues to grow. Overall, Fidelity found 64% of incoming portfolios had some allocation to ETFs, and, on average, nearly 50% of advisor portfolios are allocated to ETFs.

Advisors are most heavily relying on ETFs for U.S. equity exposure—with 72% using ETFs for those allocations, nearly equal to 77% that use mutual funds in that asset class. For international equities, however, just 42% of advisor portfolios use ETFs vs. 78% that use mutual funds.

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In addition, use of active ETFs continues to grow, with 36% of advisors using active ETFs vs. 13% in 2022. The average allocation to active ETFs was around 22%. The majority of flows into active ETFs were in the domestic large-cap space.

“Flows are going to follow the maturity of the products—the track record and the pedigree,” Goradia said. Active ETFs in the domestic large cap space have been around longer than in other categories and have more of a track record. Fixed-income strategies were next in the active ETF development pipeline, and flows are picking up there now as well, Goradia said.

Fidelity found that overall average advisor portfolios are 70% allocated to equities. Of that, 79% is allocated to U.S. stocks vs. 21% for international vs. a mix of 73% to 27% in 2021.

Within U.S. equity, the average portfolio includes a 65% allocation to large-caps, 22% to mid-caps and 13% to small caps. By style, growth equities came in at 28%, value at 29% and 43% to core.

For non-U.S. equities, advisors had 84% of their allocations in developed markets and 16% in emerging markets. Non-U.S. equities have ridden some tailwinds in 2025, including a weakening dollar, stable fundamentals and strong earnings, and a tilt toward monetary easing policies outside the United States. Tariffs, however, represent a headwind to more trade-reliant economies, particularly in emerging markets.

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Fixed-income allocations stood at 25% of advisor portfolios, according to Fidelity. Of that, 79% is allocated to investment-grade bonds and 21% to high-yield bonds.

“Bonds are back, not just as a stabilizer but as an income-producing engine,” Goradia said. Allocations are also going for shorter duration of late. “It has to do with talks about when the Fed starts cutting rates. Advisors are underweight fixed-income, but have enough allocation to investment grade and are supplementing it with high-yield and that’s cutting into the average duration.”

In addition, with higher correlations between bonds and equities, advisors have sought diversification by looking at liquid alternatives. Overall, Fidelity found that 11% of incoming portfolios had an allocation to liquid alts, with the most popular categories including hedge equity and market-neutral products.

“In a world where stocks and bonds move together, alts are the new shock absorbers,” Goradia said. “We’ve never seen this much importance given to diversification. Diversification isn’t just about spreading risk, but about building resilience and avoiding uncertainty.”

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In all, Fidelity said that of advisors using its portfolio construction services, about two-thirds come back on a periodic cadence, engaging between two and 10 times per year. “They come back ever three months or six months to make sure they still feel good about their exposures.”




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