Displaying items by tag: model portfolios

According to a Natixis Investment Management survey of fund selectors globally, self-reported use of third-party managers grew from 11 percent in 2021 to 24 percent in 2023. This was partly due to the demand for model portfolios as 72 percent of respondents reported that their firm offers some sort of model program. Natixis surveyed 441 professional fund selectors managing over $30 trillion in total client assets at wealth management, private banking, and insurance platforms globally, including 43 based in Asia. The survey also revealed that in Asia, fixed income is a highly favored asset class due to the strong demand for yield. Sixty-three percent of fund selectors in the region say they will increase investments in government bonds, while 54 percent will increase allocation to investment-grade corporate bonds. Another area of focus in the survey was alternatives. Six in ten respondents in Asia say they are recommending increased allocations due to greater market risks. Within this asset class, fund selectors are most likely to increase allocations to infrastructure at 60 percent, private equity at 32%, absolute return strategies at 32%, and commodities at 32%. ESG investing is expected to see the largest allocation boost with 61 percent of fund selectors seeking to increase allocations and 77 percent seeing increasing demand for impact investments.

Finsum:According to a new study from Natixis, self-reported use of third-party managers grew from 11 percent in 2021 to 24 percent in 2023 partly due to an increased demand for model portfolios.

The case for model portfolios has never been better. Investment managers are expanding their model portfolio offerings while turnkey asset management platforms continue to grow. Since portfolio management is just one piece of a financial plan, why wouldn’t advisors want to take advantage of model portfolios to free up time to spend with their clients? However, some advisors have a reason for resisting this trend and insist on managing portfolios themselves. For instance, Ryan Johnson, managing director at Buckingham Advisors told InvestmentNews, “By managing our own portfolios, we’re adding value.” Johnson added that they feel they have a lot of control over the individual stock selection, especially when it comes to tax planning. Paul Schatz, president of Heritage Capital also mentioned control as to why he builds client portfolios from scratch. He stated, “Control is a huge driver.” Robert Steinberg, chief executive at RIA Blue Chip Partners told the magazine that they focus on individual securities since “clients are more involved, it’s easier to tax-loss harvest, they know what they own.” While a 2020 research report from InvestmentNews cited numerous reasons for outsourcing portfolio management such as freeing up time, some advisors still see portfolio management as a core component of financial planning. The report also listed the top reasons for not using a model portfolio such as investment research strength, flexibility, and cost.

Finsum:While model portfolios continue to gain steam among financial advisors, there are still some that prefer to build portfolios themselves due to control, adding value, and getting clients more involved.

Model portfolios have been gaining ground with advisors. Close to $350 billion in assets sat in model portfolios as of March 2022, according to a Morningstar report in June. That’s a 22% increase over the prior nine months. But how do advisors incorporate model portfolios into their business? In a recent article, ThinkAdvisor asked different advisors how models fit in their practice. Erik Nero, founder, and president, of First Step Wealth Planning LLC, thinks they are a boost to small firms. He uses them for close to all of his clients except the client portfolios that need more customization. Kyle Simmons, lead financial planner, at Simmons Investment Management uses his own model portfolio but warns advisors not to get attached to models, as clients can come in with legacy holdings and tax consequences. Jan Pevzner, principal, of Gotham Block LLC finds models to be a great starting point for a “generic client” as it can save you a lot of time. Jon Ulin, CEO of Ulin & Co. Wealth Management uses models in addition to comprehensive planning for clients, which isn’t typically provided by robo-advisors. Nate Creviston, manager of wealth management and portfolio analysis, at Capital Advisors, does not use model portfolios at all as they lack tax awareness and believes each client deserves a customized portfolio unique to their needs and goals.

Finsum: With model portfolios gaining ground with advisors, ThinkAdvisor interviewed several advisors on how models fit or don’t fit into their practice.

Capital Group, the parent company of American Funds, recently launched 12 active-passive model portfolios featuring Capital Group as the strategist. The models will be made up of American Funds' actively managed mutual funds and passively-managed ETFs from Vanguard, Schwab, and BlackRock. As the strategist, Capital Group will select the passive ETFs in each model and manage the allocations. The models are the latest in a series of active-passive model portfolios from Capital Group that include growth, growth and income, preservation and income, and retirement income strategies. They are designed to help advisors balance the demands of investment management with the need to scale their businesses and deepen client relationships. Capital Group's model portfolio business is an area of strategic focus for the firm. Its model portfolio business has more than tripled in assets under management since 2018. The new models bring the total number of model portfolios available nationally to 31. The new models comprise nine core models and three retirement-income-focused models. They include:

• Capital Group Active-Passive Global Growth Model
• Capital Group Active-Passive Growth Model
• Capital Group Active-Passive Moderate Growth Model
• Capital Group Active-Passive Growth and Income Model
• Capital Group Active-Passive Moderate Growth and Income Model
• Capital Group Active-Passive Conservative Growth and Income Model
• Capital Group Active-Passive Conservative Income and Growth Model
• Capital Group Active-Passive Conservative Income Model
• Capital Group Active-Passive Preservation Model
• Capital Group Active-Passive Retirement Income Model - Enhanced
• Capital Group Active-Passive Retirement Income Model - Moderate
• Capital Group Active-Passive Retirement Income Model - Conservative

Finsum:Capital Group added to its series of active-passive models with the launch of 12 new model portfolios, including nine core models and three retirement-income-focused models.

While markets in 2022 were crushing for many, some portfolio managers at Capital Group are seeing brighter days ahead this year, but are still playing it safe. At a webinar revealing the firm’s asset allocations for this year, managers stated that they are reacting to a changing environment and that the market’s direction will depend on the movements of the Federal Reserve. John Queen, fixed-income portfolio manager said, “The key is inflation, and the path inflation takes from here is really going to determine what the macro environment looks like, what happens with interest rates here in the U.S., and then how aggressively the Fed is willing to combat that inflation if it stays somewhat elevated.” While the adjustments that the firm is making to its model portfolios are small, they are tilting away from growth and moving toward income, according to the panel. For instance, in its growth and income model portfolio, Capital Group moved 5% of its allocation out of a balanced fund and into a diversified fixed-income fund. Michelle Black, another solutions portfolio manager at the firm stated, “For a 20-year horizon, the starting point matters, and starting after a down year means positive outcomes for long-term investors. It’s probably not surprising to hear we have higher expected returns across the board versus one year ago, stemming really from more attractive valuations, especially in fixed income.”

Finsum:Capital Group portfolio managers are tilting away from growth and moving towards income in their model portfolios due to attractive valuations in fixed income.