Model Portfolio Landscape Expanding, Outlook Brightens | ETF Trends

Model portfolios make it easier for advisors to deploy a variety of asset classes in efficient fashion, so it’s no wonder that these portfolios have long been significant contributors to the growth of the exchange traded funds industry.

That growth is accelerating this year, and with more clients becoming savvy about ETFs, more advisors are embracing model portfolios, and more model portfolios are coming to market.

“What’s driving the flood of new model launches? One factor is that model portfolios have fewer barriers to entry and cost less to launch than mutual funds and other vehicles,” says Morningstar analyst Jason Kephart. “For instance, since the providers don’t hold the assets, they don’t have to register with the SEC or pay a bank a fee to custody assets.”

WisdomTree has one of the industry’s most expansive rosters of model portfolios, which includes some recent additions. For example, a new suite of ESG model portfolios from WisdomTree debuted in June, coming to market at a time of increased client demand for — and confusion about — environmental, social, and governance (ESG) investing concepts.

WisdomTree’s ESG model portfolio offerings feature an all equity portfolio as well as moderate and aggressive sleeves featuring varying degrees of fixed income exposure.

Model Portfolios Are Big Business

Indeed, model portfolios are money makers for issuers.

“As of June 30, 2021, at least $315 billion was invested in third-party model portfolios, based on a survey of 28 of the leading model providers and data reported to Morningstar Direct,” adds the research firm.

However, that doesn’t diminish the allure of model portfolios, nor are economics an indictment of model portfolios’ ability to potentially improve client outcomes. For example, disruptive growth is a style of investing that has received increased attention over the past couple of years, but it’s one that many clients may find difficult to implement on their own.

WisdomTree improves upon that scenario with the Disruptive Growth Model Portfolio, which debuted earlier this year.

“This model portfolio targets structural growth themes we believe are driving innovation and disruptive changes across different industries, sectors, and segments of society. This portfolio’s objective is maximum long-term capital appreciation and its holdings typically exhibit above-market growth projections,” according to the issuer.

Of course, WisdomTree is in the ETF business, making its model portfolios cost-effective options for advisors.

“Even after adjusting for model portfolios’ generally heavy use of passive options, they remain cheap versus mutual fund peers. Whereas expenses for model portfolios fall within a relatively narrow band, mutual funds have a handful of high-priced outliers; seven charge more than 200 basis points,” adds Morningstar.

For more news, information, and strategy, visit the Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.