Displaying items by tag: model portfolios

Wednesday, 06 September 2023 07:13

Model portfolios: can you spell traction?

More and more, in recent years, especially, model portfolios are finding their mojo, according to wealthsolutionsreport.com.

Within the financial advice industry, they’re hitting traction and, for wealth managers, have evolved as a solution – and a compelling one, at that.

In 2020, the estimated value of assets under management in model portfolios hit $3 trillion. The catalyst? To a degree, exchange traded funds don’t take as big a hit out of the wallet. Not only that, the fact the trend toward comprehensive financial planning strategies is ongoing.

Meantime, a little time travel, anyone?

In the next five years, the model portfolio realm of money management is expected to balloon to a business of $10 trillion, BlackRock Inc, expects, according to advisorhub.com.

“It’s going to be massive,” said Salim Ramji, global head of iShares and index investments at the asset manager, on Bloomberg Television’s ETF IQ. “It’s the way in which more and more fiduciary advisers are doing business, and, as a result, that’s the way in which we’re doing business with them.”

 

Published in Eq: Financials
Tuesday, 05 September 2023 04:32

Why Today’s Advisors Need Model Portfolios

The landscape for financial advisors has shifted rapidly over the last decades. And, these shifts are only accelerating in terms of frequency and impact. Thus, advisors also need to update their strategy and approach to thrive in this new environment.

 

A major change is that advisors have to work harder to get and keep clients, especially given that many other money managers are likely competing for clients' resources, time, and attention as well. 

 

For Financial Planning, John Guthery discusses why advisors should start embracing model portfolios to align their business with this new environment. Increasingly, the most value that an advisor brings is through quality time spent communicating with their clients to understand their needs and plan appropriately. This is true for both parties. 

 

Too many advisors are spending too much time managing portfolios and researching investment ideas, when they could instead be focused on tasks that will actually grow their business. Most long-term research shows that advisors fail to beat the market over long periods of time.

 

With model portfolios, this function is effectively outsourced so that advisors can spend more time on the tasks that actually move the needle in terms of building and operating a thriving practice. 


 

Finsum: Financial advisors tend to feel like they are not spending enough time with clients. Model portfolios are one solution as it frees up time for advisors.

 

Published in Wealth Management

Most advisors and investors are familiar with the benefits of diversification when it comes to asset classes. However, there‘s less understanding about the importance of risk factor diversification. In ETF Trends, Scott Welch CFA of Wisdom Tree Investments shares the importance of this concept, and why advisors need to intuitively understand it.

 

There are some parallels between asset class and risk factor performance and diversification. Both are nearly impossible to forecast especially on shorter timeframes. But over a longer period of time, certain conjectures can be made with confidence. For instance, there tends to be mean-reversion over longer time periods. 

 

Last year exemplified the risks of not being sufficiently diversified in terms of factor risk, growth was crushed, while value outperformed for the first time in decades. Yet, this has nearly completely inverted in the first-half of 2023 due to the rollicking bull market in stocks linked to artificial intelligence. Thus, this demonstrates the importance of factor diversification and rebalancing, similar to what is done for asset classes. 

 

Currently, one risk for investors overexposed to growth factors is valuations that are historically elevated. In contrast, value factor stocks are quite cheap from an absolute and relative basis. Thus, it could favor some rotation from growth to value once again. 


Finsum: Asset class diversification is an elementary part of portfolio management and construction. Another important concept is risk factor diversification.

 

Published in Wealth Management

A gaggle of financial advisors will assign clients to a pre built mode portfolio, according to smartasset.com.

Why, pre tell? Well, given that pinpointing which investments will abet your ability to hit your financial goals isn’t exactly a walk in, say, Central Park, instead of building a portfolio of investments from ground zero, they’ll opt instead for a model portfolio, already built.

Why invest in a model portfolio:

Diversification

Research and Professional Analysis

Rebalancing

Affordability

Don’t want to tackle a do it yourself approach to investing? Model portfolios can be your ticket. But prior to sinking your bread into it, it’s incumbent upon you to not only grasp how it works, but to compare fees.

And a reminder: if you’ve been putting dollars in ready made curated portfolios, it’s a good idea to check the type of registration offered by the managers the curated portfolios have with market regulator Sebi, according to livemint.com.

Registered as a research analyst? Well, that means that offering model portfolios is off the boards, based on observations of Sebi’s settlement, which was order dated in May,

Ultimately, all the curated portfolios offered by research analysts in the market’s likely to be impacted.

Published in Eq: Financials

Although 2022 was the worst year for bonds in recent history, there are some silver linings for fixed income investors according to WisdomTree’s Andrew Okrongly and Behnood Noei who are the firm’s director of model portfolios and fixed income, respectively. These are the highest yields in decades which is bringing ‘income back to fixed income portfolios’ and the potential for significant returns. The second is reduced duration risk given that short-term bonds are offering generous yields.

 

The current environment is significantly different from what prevailed for much of the last 2 decades when bonds both trended higher with minimal volatility. However, the asset class became less appealing due to higher levels of duration risk in addition to miniscule yields. As a consequence, many fixed income investors went further out on the risk curve to find yield whether it was junk bonds, EM debt, or dividend-paying stocks. 

 

Now, investors can find much higher levels of yield with much less risk. Therefore, fixed income can return to its traditional role of providing income and safety in portfolios. In fact, it’s a rare circumstance that shorter-term bonds are offering much higher yields than longer-term bonds with less risk. And, these conditions should persist given current Fed policy and the economy’s resilience. 


Finsum: Investors should consider short-duration fixed income model portfolios given that they are offering higher yields with less duration risk. 

 

Published in Wealth Management
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