Why are advisers’ defensive allocations on the rise?

While the last several months have seen increased market volatility, particularly in the US, advisers said this isn’t the reason there might be an increase in defensive asset flows.

According to Betashare’s June ETF report, cash and fixed income ETFs experienced inflows of $1.3 billion in May, jumping considerably from the previous month which saw just $366 million.

Later that month Morningstar released its Australian asset manager report for Q2 2025 which found that fixed income – which also included private debt, diversified credit, and unconstrained fixed income – and cash were the only products managed by traditional active managers reporting positive flows.

Meanwhile, research by Fidante identified 32 per cent of advisers are looking to increase allocations into fixed income, and 29 per cent plan to do so with cash.

This move to defensive positioning is likely to be a result of market volatility and turbulence caused by factors such as tariffs in the US, fears of an economic slowdown, and geopolitical conflicts. 

However, according to FreshWater Wealth financial adviser, Roger Perrett, this apparent push into defensive assets is a response to recent strong rallies in equities rather than a panic movement.

“It’s not because of a pending crash or anything like that,” Perrett told Money Management. 

“What we are seeing, though, is that with a really strong rally in equities, a lot of the portfolios are ending up overweight. So, we may have a target weight of, for example, Australian equities in a growth portfolio of 30 per cent.

“But because the allocation of all the shares has grown so much, instead of being 30 per cent, they may be 35 per cent. They’ve just outperformed the other asset classes, which means they’re overweight, so we are selling or we are reweighing their portfolio.”

While noting the validity of concerns regarding swings in the US market, he explained that recent events have highlighted the importance of the long-term approach to investing and avoiding trigger reactions to market swings.

For example, on 2 April, US President Donald Trump introduced sweeping tariffs as part of his so-called “Liberation Day” causing markets into sharp decline. In response to this, many investors sold off US equities. However, a 90-day hold on the tariffs was announced within the week and, for the most part, markets have since recovered completely.

For those that had pulled out and then jumped back in after the recovery, Perrett said they suffered twice by losing out on the upswing and then buying back in at a higher price.

Several financial advisers believe this movement and the resulting portfolio impact has shone a light on why it’s so important to stick to the old adage: it’s about time in the market, rather than timing the market.

Viola Private Wealth founding partner and financial adviser, Charlie Viola, suggested events such as this show why trusted financial advisers are so vital in helping investors keep their eye on the horizon and avoid reactive responses to market swings.

“Volatility and unexpected events are part and parcel for longer term investing and as such, we approach portfolio construction under an ‘all weather’ philosophy, so that they are likely to perform regardless of market conditions,” Viola said.

While noting the key role of advisers in protecting clients’ wealth, which Viola said can make them naturally more “defensively inclined”, he said that being permanently bearish on markets can also cost them in the long run.

“Advisers need to strike a balance between being defensively positioned if they believe there is some catalyst that may cause volatility, but also aware of the fact that the majority of the time, markets do trend upwards even in the face of economic or political uncertainty. The last five years have been a fantastic example of this,” he said.

Regarding whether they had changed their allocations to US equities, Viola said he had retained his long-term view on the US but also took a global view on equities rather than focusing solely on one market. 

Robert Devlin, partner and head of advice at Tribeca Financial, said that US equities  remain a crucial part of long-term portfolio construction despite recent market upsets.

“We haven’t made any major changes to our targets for US equities in the recent short term. We’re more looking at the long-term results, and we know that that’s generally put us in good stead,” Devlin told Money Management.

“We saw what happened after Liberation Day. Obviously, the markets took a significant dive, but they more than recovered in the next couple of months, and obviously still posting really good yearly returns now.

“We know that the US market has done that over a long period of time and outperformed most of the Australian markets, so we know they’ve got to be in our asset allocation.”