Portfolio Construction

Portfolio Construction Pulse: Cash Moves as Uncertainty Fades


A key consideration for 2024 is restoring balance to client portfolios.

Hi, I’m John Escario, director of investment solutions in the Portfolio Construction group at T. Rowe Price.

Today, we’ll discuss the latest edition of Portfolio Construction Pulse, Cash Moves as Uncertainty Fades.

Let’s start with asset allocation.

Our Portfolio Construction Solutions team observed a steady decline in portfolio risk over 2023, coupled with two key trends:

  • First, cash allocations in money market strategies grew and…
  • Second, clients reduced their use of alternatives.

Now, let’s look at equity and fixed income allocations.

  • Within equities, exposure to value-oriented strategies broadened across the board, both in the U.S. and internationally.
  • On the fixed income side, clients added to intermediate core bonds and increased overall portfolio duration (As a reminder, duration is a measure of a bond portfolio’s sensitivity to interest rates). Credit quality also improved.

Finally, let’s look at some potential approaches to portfolio construction. 

A key consideration for 2024 is restoring balance to portfolios.

  • Consider broadening exposure across value, blend, and growth in both U.S. and international equities.
  • With peak interest rates potentially behind us, consider adding duration and yield to fixed income.
  • Redeploy cash across a diversified 60/40 portfolio, potentially tilting toward assets where valuations are less demanding.

If you have questions about your portfolio positioning, we encourage you to read the full Portfolio Construction Pulse, Cash Moves as Uncertainty Fades, now available on the T. Rowe Price website or contact your T. Rowe Price Sales representative and set up a consultation with one of our Portfolio Construction Specialists. We’re here to help. 

Over the course of 2023, many financial professionals shifted their portfolio positioning from a focus on inflation and rising rates to bracing for a recession. As this defensive approach gradually gained traction, signs of a soft landing began to emerge, and client conversations turned to redeploying cash. However, with yield curves normalizing and few signs of strong overall growth in 2024, the potential for market volatility remains. This may suggest moving back to a balanced approach as the economy and markets gradually emerge from uncertainty.

Positioning Highlights

As of December 31, 2023

Asset Allocation

Our Portfolio Construction Solutions team observed a steady decline in portfolio risk over the last year, coupled with two trends related to cash allocations and alternatives.

Cash allocations in money market strategies continued to grow. Combined with assets held outside client portfolios, cash reached nearly 20% of total net assets in mutual funds and exchange-traded funds.

Overall, clients reduced their use of alternatives. However, positions in hedged equity strategies continued to rise, underscoring the growing defensive positioning of client portfolios.


Data sourced from model portfolios submitted by financial professionals and reviewed by our Portfolio Construction Solutions team.

Model Allocations (Average)

T. Rowe Price utilizes “Other Equity” to invest in outcome-oriented equities to address inflation. Financial professionals typically utilize Other Equity for specific allocations to sector-oriented exposure. 

For financial professionals, alternatives includes investment strategies in the following categories: Commodities, Master Limited Partnerships, Real Estate, Global Real Estate, Multi-strategy, Options Trading, Long-Short Equity, Relative Value Arbitrage, Event-Driven, Systematic Trend, Macro-trading, Derivative Income, and Equity Market Neutral. Alternatives play a defined role in T. Rowe Price multi-asset portfolios, serving as an illiquid cash-plus alternative that is carved out of fixed income. 

SOURCE: T. Rowe Price Client Investment Platform (CIP) database.



Value allocations gained across all U.S. market capitalization ranges, particularly among mid-cap strategies. Style bets can be a popular tactical approach, but our research suggests that a balanced approach that includes value, blend, and growth showed better returns, more efficient performance, and improved long-term return consistency.

Less emerging markets, more overseas developed. Allocations to international equities held steady with 2022 levels at 22.6% of the overall equity allocation, but clients moved away from global stock and emerging markets strategies in favor of overseas large-cap funds, especially value and blend strategies. International small- and mid-cap funds also gained attention.

EQUITY4 Financial Professional Model Portfolios T. Rowe Price Multi-Asset Strategic Design Difference
U.S. Large-Cap 53.8% 52.5% 1.3%
U.S. Small-Cap5 20.1 13.5 6.6
Dev. Ex-U.S. Large-Cap 13.3 21.0 -7.7
Dev. Ex-U.S. Small-Cap 0.9 4.0 -3.1
Emerging Markets Equity 3.1 4.0 -0.9
World Stock 4.2 0.0 4.2
Regional Stock 0.1 0.0 0.1
Other Equity 4.5 5.0 -0.5


Equity Statistics

3 Based on Morningstar categories.
4 As percentage of total equity.
5 Includes both small-cap and mid-cap equities.
6 As percentage of U.S. equity.

Fixed Income


Duration rose and credit quality improved as many financial professionals moved to a barbell approach to cash and intermediate core bonds. Fixed income strategies that typically aid in dampening interest rate sensitivity saw reduced allocations, including short-term bond, inflation protected bond, and U.S. dollar-hedged global bond funds.7

Allocations to high yield and multi-sector diversifiers gained moderately, while the use of floating rate bank loans fell dramatically.

Fixed Income7,8 Financial Professional Model Portfolios (3-Year Average) T. Rowe Price Multi-Asset Strategic Design Difference
Short-Term Fixed 14.1% 14.1%
Core Fixed Income 52.6 70.0% -17.4
Diversifiers9 33.4 30.0 3.4


Fixed Income Statistics


Fixed Income Statistics

7 Based on Morningstar categories.
8 As percentage of total fixed income.
9 Diversifiers include fixed income strategies that offer diversification to traditional core fixed income. This includes: Bank Loan, Convertibles, Emerging Markets Bond, Emerging Markets Local Currency Bond, High Yield Bond, High Yield Muni, Multi-sector Bond, Nontraditional Bond, Preferred Stock, and World Bond. For select T. Rowe Price multi-asset portfolios, the firm’s nontraditional bond fund is used as a liquid cash-plus alternative that is carved out of the cash position in fixed income allocations.
10 As percentage of diversifiers.


Whether a financial professional is looking to redeploy cash or not, a key consideration for 2024 is restoring portfolio balance. Consider the following and determine a potential course of action:

Broaden equity exposures. U.S. equity performance has been top-heavy, but that could change in 2024 as earnings expectations stabilize. If you expect market leadership to broaden with more varied potential sources of return, consider the following:

  • Balance exposure across value, blend, and growth in both U.S. and international equities.
  • Revisit allocations to small- and mid-cap equities to establish a measured overweight, reducing or adding exposure where needed.
  • If a more cautious approach to international equities is appealing, consider using global stock funds to dip into international waters. Overseas small- and mid-cap stocks may offer an alternative route to emerging markets.

Rethink fixed income. With peak interest rates potentially behind us, adding duration and sustainable yield are two potential tactics. If you are seeking to add more duration or take advantage of higher yields, consider the following:

  • Take a more conservative approach to adding duration if changes in interest rates remain a concern by utilizing shorter-duration strategies like ultrashort and short-term fixed income.
  • Add intermediate core bonds if your objective is to provide a buffer to total portfolio risk.
  • Use diversified strategies that actively manage duration like global multi-sector bond funds if you seek flexible solutions to navigate the changing interest rate environment.
  • Add floating rate and/or high yield bonds for those seeking to fulfill an income objective.

Redeploy cash from a total portfolio lens. While past performance is not a reliable indicator of future results, our research suggests that this approach historically, on average, outpaced cash in the 12 months following periods ranging from six months before to six months after a peak in the federal funds rate. The outperformance was greatest when invested at the peak, followed by the three- and six-month pre-peak starting points, respectively. Outperformance was smaller after the peak. Consider the following:

  • Redeploy cash across a diversified 60/40 portfolio by:
    • Taking a wholesale approach
    • Filling in the gaps in your asset allocation
    • Tilting toward asset classes where valuations are undemanding

Portfolio Construction Solutions from
T. Rowe Price

We work with financial professionals to find practical solutions for critical investment and practice challenges. Used independently or in combination, each component of our integrated suite of Portfolio Construction Solutions provides access to T. Rowe Price’s world-class multi-asset expertise and global investment resources to address your portfolio construction needs.


Portfolio Construction Solutions discussed are available only to financial professionals and not the retail public. Art of Clean Up® and Asset Allocation Model Review are offered by T. Rowe Price Investment Services, Inc. Model Construction is offered by T. Rowe Price Associates, Inc.

Risk Considerations

Funds that invest in growth stocks are subject to the volatility inherent in common stock investing, and their share price may fluctuate more than that of a fund investing in income-oriented stocks.

The value approach to investing carries the risk that the market will not recognize a security’s intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced.

Mid-caps generally have been more volatile than stocks of large, well-established companies.

Small-cap stocks have generally been more volatile in price than the large-cap stocks.

International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets.

The fund’s investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk, such as nonpayment of principal or interest, and risks of bankruptcy and insolvency.

Past performance cannot guarantee future results. All investments involve risk. The charts and tables are shown for illustrative purposes only.

This material has been prepared by T. Rowe Price Investment Services, Inc., for informational purposes only. Information and opinions are derived from proprietary and nonproprietary sources deemed to be reliable; the accuracy of those sources is not guaranteed.

Under no circumstances should this material, in whole or in part, be copied, redistributed, or shown to any person without prior consent from

T. Rowe Price. This material is not intended to be investment advice or a recommendation to take any particular investment action. This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the

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