Recent months are a game changer for global debt markets. Japan is allowing its 10-year yield to rise sharply and Germany – the last bastion of fiscal caution – has capitulated. These two forces will drive global yields higher, a tough environment for any high-debt country.
Assets following model portfolios—preset investment templates designed by money managers—rose to a record $7.96 trillion in April, up from $6.44 trillion a year earlier, according to the data firm Broadridge Financial Solutions. More than eight in 10 fee-based advisers in the U.S. are now using models for at least some of their client assets.
Model portfolios encompass a range of strategies, but generally refer to a ready-made selection of funds delivered through financial advisers and brokerages to individual investors. A model could go as far as automating all of the investing, trading and rebalancing on behalf of an end client; or it could simply serve as a guide for an adviser.
The growth in models has coincided with the explosion of passive investing and cheap exchange-traded funds over the past 15 years, a trend that has pressured advisers to lower costs.
A typical model is composed of ETFs that give an investor diverse exposure to such assets as stocks, bonds, cash and gold, matched with an individual’s goals and risk tolerance.
As assets overseen by the biggest full-service financial advisers have grown, model portfolios are allowing advisers to focus on other services that fee-paying clients expect.
Thousands of models are offered by big wealth-management firms, such as UBS and Morgan Stanley, as well as asset managers including BlackRock and Fidelity Investments. Models could be open-architecture—made up of funds from a number of different investment managers—or focused on one manager’s funds.
The multitrillion-dollar model industry is also now driving massive fund flows behind the scenes. For instance, BlackRock, the world’s largest investment manager, runs about $160 billion of model portfolios. When Michael Gates, the lead portfolio manager of BlackRock’s multiasset models, tweaked them to add two little-known ETFs in late May, the funds attracted a significant amount of new assets in just days.
BlackRock’s iShares AI Innovation and Tech Active ETF had a modest $144 million in assets under management.
After BlackRock added it to popular models, assets surged more than 10-fold to $1.5 billion by May 23.
Broadridge expects that model-portfolio assets will reach $13.2 trillion by the end of 2029. Models are particularly popular with the “mass affluent” segment of adviser clients, or those with $100,000 up to $1 million of investible assets. Those clients account for 33% of assets in the financial-advice industry but 43% of the assets in models, according to Broadridge estimates.
