Displaying items by tag: model portfolios
How Model Portfolios Combat Risk
2021 has posed its fair share of risks to the average portfolio: emerging market disruption, Covid-19 resurgence, slowing economic growth, and rising inflation. However, model portfolios are the solution advisors can utilize to mitigate this risk. Often sought after for their ability for advisors to utilize in order to spend time deepening relationships with clients, a suite of model portfolios have popped up targeted to mitigate risks. For example, EQM Capital launched a variety of modular model portfolios that are risk-based ETFs to better suit clients’ portfolio objectives and preferences.
FINSUM: Model portfolios are expanding and changing in a variety of ways, and this means they can better suit their clients whether that's for their risk level or ESG expansion.
Here are Morningstar’s Top Model Portfolios
(New York)
Morningstar has added a lot of coverage to their model portfolio universe this year. Earlier in 2021 they expanded their coverage of ratings to 1500 model portfolios, an increase of 50%. Of all those funds reported on, only two of them took home their coveted gold rating: the Vanguard CORE series and the BlackRock Target Allocation ETF. Vanguard was noted as having highly diversified index funds and rarely making portfolio changes. Other funds that got acclaim, such as their silver rating, include American Funds Growth & Income and the American Funds Tax Aware Growth & Income series.
FINSUM: The world of model portfolios has grown nearly as dizzying as that of ETFs so these Morningstar guides are a big help.
Fiduciary Rule 2.0 Will Scare Advisors Into Doing This
(New York)
The new version of the fiduciary rule which is in the works will have a major effect on many financial advisors, but most think of this from a regulatory and customer interaction perspective. However, the rule will likely have an effect on some products too. One that seems likely to surge is usage are model portfolios. Model portfolios grew in prominence as the Obama era rule ascended. They tend to benefit clients and firms alike since they save time and money for advisors and give a great deal of outsourced investing expertise to clients. Also, because of their fee structure, they tend to create predictable revenue streams without any way to accuse an advisor of preferring specific funds which could be construed as not being in their clients’ best interests.
FINSUM: This makes total sense. Model portfolios were in part driven by the first version of the DOL rule, so a resurgence of the spirit of that rule will likely make firms and advisors push even further into this product.
Fidelity’s New Model Portfolio Push
(Boston)
Fidelity is making a renewed push into model portfolios. After launching its first model portfolios in 2018, the firm has realized that RIAs and BDs want different types of models. RIAs use models to a great degree, but don’t tend to put a whole lot of assets in them. Fidelity realized it needed to optimize its approach. According to Suzanne Daly, Fidelity’s VP of model portfolio distribution, “RIA growth is really accelerating, and in a different manner [than IBDs] … [They are] looking to blend equity and fixed income models to build a more personalized fully asset allocated unified managed accounts (UMA) model”.
FINSUM: This makes a lot of sense. RIAs used to balk at the 25 bp fee for UMAs (which goes on top of the underlying management fees), but they have recently been coming around.
The Best Model Portfolios Right Now
(New York)
Model portfolios provided by third parties have become increasingly popular for advisors, but separating the best from the rest is no easy feat. To help out advisors, Morningstar now has rankings and guides (see them here). Here are five of the top picks from Morningstar: BlackRock Target Allocation ETF, Vanguard CORE, American Funds Growth & Income, American Funds Tax Aware Growth & Income, BlackRock Multi-Asset Income. Other interesting options include the State Street Strategic Asset Allocation and T.Rowe Price Active.
FINSUM: The world of model portfolios has been proliferating enough that scoring and guidance is very useful (just think how hard ETF selection would be without screeners!).