Displaying items by tag: model portfolios

Financial advisors constantly strive to find the perfect balance between serving their existing clients and attracting new ones. Often, they view their core value proposition as managing customized portfolios tailored to each client's unique needs. From this perspective, they believe spending less time constructing bespoke portfolios could negatively impact client relationships. However, a counterintuitive approach suggests the opposite: using model portfolios can create more time for genuinely serving clients.

 

While it may seem a paradox, spending less time on portfolio construction and more time listening to clients can significantly improve service. Building trust and understanding client needs requires dedicated time for genuine conversations and insightful questions. By freeing time from portfolio management, advisors can focus on building deeper relationships with their clients, focusing on what truly matters most to them.

 

Moreover, using model portfolios doesn't mean sacrificing portfolio quality. These portfolios are typically managed by professionals with access to a larger team of experts and a more comprehensive range of investment options than most advisors have access to.

 

Embracing model portfolios as a time-saving tool allows advisors to shift their focus from portfolio construction to client service. This seemingly counterintuitive approach often leads to higher client satisfaction and increased referrals, leading to a more successful practice.


Finsum: Consider how model portfolios can enhance client service for advisors by saving time on portfolio construction and focusing on client relationships.

 

Published in Wealth Management

Every industry changes and evolves with time. The financial advice industry is no different as advisors increasingly move towards focusing more on financial planning and serving clients with less emphasis on making investment decisions.

 

This is now being increasingly handled by asset managers and third parties. Currently, about 10% of advisors use home office model portfolios with minimal modifications. 36% of RIAs and independent broker-dealers are building their own allocations from scratch. Most advisors are taking a blended approach by using these models as a starting point and then offering some customization to suit a clients’ specific needs. 

For advisors, the shift makes sense especially as most clients seem to value planning more than performance. Further, it frees up time and energy that can be spent on client service and growing the business. According to Cerulli, advisors who build their own portfolios, spend about 30% of their time on the task. 

 

Another benefit for advisors is that it makes the business more scalable. For advisors who spend considerable time on portfolio management, there is more of a constraint to how many clients can be added. An interesting finding is that firms with large amounts of assets under management are more likely to use model portfolios. 


Finsum: Model portfolios are becoming increasingly popular, although most are currently using a blended approach. Here are some of the major benefits to advisors. 

 

Published in Wealth Management

Decisions made by model portfolio managers are showing that investors are starting to get cautious about valuations of megacap tech stocks. These stocks have been the biggest gainers this year in the stock market. Tech stocks with market caps above a trillion dollars are up more than 50% YTD, while the S&P 500 is up 19%. 2 major catalysts for this group have been the perception that rates have peaked and a frenzy for securities connected to artificial intelligence. 

 

Of course, many market-cap weighted or tech-focused indices will have outsized exposure to this group. According to Brooks Friederich of Envestnet, an intermediary which operates a platform that offers customized products from asset managers, “End-clients are saying ‘I want an investment product that isn’t going to have all this exposure to the big-tech stocks,’ If you look at retirement portfolios, they all have too much exposure to that because of the construction of the market.”

 

He also adds that balanced portfolios continue to have appeal and are a major reason for the boom in model portfolios given the ease of combining asset classes. More than half of the assets on its platform are linked to 60/40 or 70/30 portfolios despite the poor performance of fixed income as a hedge against equities last year.  


Finsum: Model portfolio end-clients are showing some concerns about the valuations of megacap tech stocks, while remaining committed to balanced portfolios despite recent volatility. 

 

Published in Wealth Management
Tuesday, 28 November 2023 02:58

Generating Yield With Model Portfolios

Kevin Flanagan, WisdomTree’s Head of Fixed Income Strategy, and Scott Welch, the firm’s CIO of Model Portfolios, recently shared some insights on how model portfolios can be used to generate yield in the current environment. They see this as an opportune time to invest in fixed income especially given the differential between the S&P 500’s dividend yield and short and long-term rates. 

 

Currently, they see the Fed as wanting to remain hawkish, however the rise in long-term yields has also contributed to a tightening of monetary policy. In terms of inflation, they believe it has peaked but that the Fed is unlikely to begin cutting rates until the middle of 2024 due to ongoing tightness in the labor market. Additionally, they note that credit spreads have recently widened but nowhere near extreme levels.

 

Amid this environment, they recommend that investors stick to the short-end of the curve given the inverted yield curve and favor US Treasury floating rate notes which are the highest-yielding Treasuries. Within WisdomTree’s model portfolios, the firm has reduced its weight of high-yield debt while modestly boosting allocation to mortgage-backed securities.

 

Overall, they see fixed income as resuming its natural role - providing low-risk income and serving as a hedge against equities. 


Finsum: WisdomTree shared some insights on the current macro landscape, and how it’s positioning its model portfolio allocation to flourish in this environment. 

 

Published in Wealth Management

Blackrock is one of the leading providers of model portfolios. Currently, the asset manager is overweight megacap tech stocks. It sees strong earnings momentum and growth upside in addition to resilient balance sheets. These companies are more insulated from high rates as they aren’t reliant on bond markets for financing. 

 

The stock market rally in 2023 has been defined by a handful of stocks, powering the indexes higher. In contrast, smaller stocks and the broader market have struggled. Many analysts have cited this divergence as one reason to question the durability of recent stock market gains. 

 

YTD, the Nasdaq 100 is nearly 40% higher due to strong gains from companies like Nvidia, Meta, and Tesla. In contrast, the S&P 500 is up 14%. Currently, Blackrock’s model portfolios have about $100 billion tracking these stocks. This is particularly significant as the entire model portfolio asset base is estimated to be $4.2 billion. 

 

According to Tushar Yadava, a strategist with Blackrock’s Multi-Asset Strategies & Solutions group, Blackrock has been mostly overweight equities this year, although the firm did briefly go underweight in the spring of this year, following the regional banking crisis. Earlier in the year, it anticipated that the stock market rally would eventually broaden out, but this hasn’t happened yet.


Finsum: Blackrock is overweight megacap tech in its model portfolios as it favors companies with earnings momentum and strong balance sheets. 

 

Published in Wealth Management
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