Portfolio Construction Pulse
Actively Navigating a Changing Landscape
Our biannual survey of investment advisor data and insights shows renewed interest in flexible and active mandates in portfolio construction decisions.
Advisors return to active investing amid a changing landscape
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As of June 30, 2025
Market uncertainty drove investors to flexible and active mandates.
The scope and scale of change to markets, economies, and policies in 2025 drove portfolio positioning toward flexible and active mandates in advisor model portfolios, including increased adoption of alternatives and allocation funds. Advisors also shifted toward U.S. large-cap stocks and artificial intelligence (AI) exposure and away from core fixed income. Exchange-traded funds (ETFs) continued to gain share within models.
- Highlights
- Portfolio Statistics
- Equities
- Fixed Income
- Alternatives
- ETFs
- Active/Passive
- Model Averages
Investors position for change
Amid increased market, economic, and geopolitical uncertainty over the 12 months ended June 30, 2025, advisors showed renewed interest in flexible and active mandates, including alternatives and allocation funds. Among equities, advisors moved away from value, small-cap, and mid-cap stocks and toward U.S. large-caps, particularly those exposed to artificial intelligence. Within fixed income, active multi-sector mandates gained popularity at the expense of intermediate core. At the same time, exchange-traded funds continued to gain share within models. We expect the investment opportunity set to broaden into areas with less challenging valuations, including international value stocks, U.S. mid-cap stocks, and flexible mandates, over the coming year.
* As of June 30, 2025. Firmwide multi-asset portfolio assets under management include assets managed by T. Rowe Price Associates, Inc., and its investment advisory affiliates. This figure also includes assets that are held outside of T. Rowe Price but where T. Rowe Price influences trade decisions.
Considerations for the next six to 18 months include broadening exposures to areas with less challenging valuations, such as international value and U.S. mid-cap stocks, as well as flexible mandates.
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Search for flexibility and performance drive allocation changes
Average Allocation: 12-Month Change
Within fixed income, advisors broadened their use of diversifiers against the backdrop of fiscal deficit concerns and tariff worries. Flexible multi-sector mandates gained the largest share within models, while allocations to intermediate core fixed income fell. A preference for actively managed investments came through with increased alternative and allocation fund positioning at the expense of value, foreign, and small- and mid-cap positioning.
Positioning moved to enhance flexibility within fixed income and align with relative performance within equities.
Overcoming market volatility
Our active management approach helped clients power through market volatility—and come out ahead.
U.S. large-cap winners continued to run
Financial Professional Model Portfolios: U.S. Stocks by Market Capitalization*
Source: T. Rowe Price Client Investment Platform (CIP) database as of June 30, 2025.
Compelling returns, solid earnings growth, and AI-driven interest fueled increases in U.S. large-cap blend and U.S. large-cap growth despite concerns about concentration risk. AI also drove sector exposures, with increases in technology, industrials, and utilities. These gains in the market’s winners came at the expense of international, U.S. value, and small- and mid-cap stocks.
U.S. large-cap blend and large-cap growth gained share in models, fueled by solid performance and AI-related tailwinds.
Strategies to Consider
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Cuts to the core
Financial Professional Model Portfolios: Fixed Income Allocations
Sources: Bloomberg, T. Rowe Price Client Investment Platform (CIP) database as of June 30, 2025.
Fixed income has become a clear pain point for many advisors. While the Bloomberg U.S. Aggregate Bond Index enjoyed a solid 3.8% gain through June 30, 2025, concerns around inflation, tariffs, Federal Reserve policy, and fiscal deficit spending have fed investor unease toward the fixed income asset class.
Advisors meaningfully cut exposure to core fixed income, which declined from 71% to 63% of fixed income allocations.
Strategies to Consider
Policy uncertainty fueled a big jump in alternatives
Financial Professional Model Portfolios: Alternative Allocations*
*As a percentage of U.S. equities.
Source: T. Rowe Price Client Investment Platform (CIP) database as of June 30, 2025.
*For financial professionals, alternatives include 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 as of June 30, 2025.
The average advisor allocation to alternatives grew from 4.6% to 6.0% over the last year, driven by a desire to dampen portfolios from policy uncertainty and to further diversify from fixed income. Advisors increased allocations most meaningfully to defined outcome, multi-strategy, and equity market-neutral strategies. They cut back from allocations to derivative income, relative value, and natural resources.
Advisors shifted to downside protection, with increased use of defined outcome and multi-strategy mandates.
Strategies to Consider
Active ETFs surged over the last year
Financial Professional Model Portfolios: Active ETFs
Source: T. Rowe Price Client Investment Platform (CIP) database.
ETFs continued to gain traction and accounted for 30.5% of an average moderate-risk model. While they are more heavily used within large-cap equity allocations, their uses continue to broaden. Active ETF usage grew 77% over the last 12 months and accounted for 31.8% of total ETF allocations. We are also seeing greater use of outcome-oriented ETFs within advisor models.
The use of active ETFs grew 77% over the last 12 months and accounted for 31.8% of total ETFs. Consider where active ETFs could add value and potentially complement other allocations.
Strategies to Consider
Active strategies for a shifting landscape
Allocation Mix: Active, Passive, and Strategic Beta
Many portfolio sleeves are dominated by active strategies with allocation funds, alternatives, and fixed income showing 86% or greater active share. On the equity side, passive and strategic beta use is highest in U.S. large-cap blend and mid-cap blend. Active mandates carry high share in international allocations, small-cap, and mid-cap growth.
* According to Morningstar, actively managed strategies rely on analytical research, judgment, and experience for investment decisions; passively managed strategies track an index; and strategic beta strategies track an index with modifications to allow for varying position sizes, the exclusion of securities, or the use of leverage.
Active allocations gained share and made up 74% of advisor strategy allocations. Active usage is especially high in international, small-cap, and mid-cap growth within equities. They were strong across the board within fixed income.
Strategies to Consider
Average model is diversified with 16 positions
Advisor models are broadly diversified overall both in terms of the number of holdings as well as the inclusion of a range of asset classes. The average equity allocation contains 9.5 holdings, while the average fixed income sleeve has 4.7 positions. Alternatives continue to gain traction, with 59.5% of models holding an alternative allocation and an average of a 4.6% allocation within a model.
While the average model is broadly diversified with over 16 holdings, there are several areas that may be overlooked. International value and international small- and mid-caps see low usage within equities, while core bond and global bond see relatively low usage on the fixed income side.
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Additional Disclosures
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Important Information
Risk Considerations
All investments are subject to market risk, including the possible loss of principal. Active investing may have higher costs than passive investing and may underperform the broad market or passive peers with similar objectives. Diversification cannot assure a profit or protect against loss in a declining market. Alternative investments are speculative investments that typically involve aggressive investment strategies. In addition, alternative investments may be illiquid, difficult to value, and not subject to the same regulatory requirements as mutual funds. These factors may increase the fund’s liquidity risks and risk of loss.
Mid-caps generally have been more volatile than stocks of large, well-established companies.
Small-cap stocks generally have been more volatile in price than 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.
ETFs are bought and sold at market prices, not net asset value (NAV). Investors generally incur the cost of the spread between the prices at which shares are bought and sold. Buying and selling shares may result in brokerage commissions, which will reduce returns.
Past performance cannot guarantee future results. All investments involve risk. The charts and tables are shown for illustrative purposes only.
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