Survey of firms in Canada and US show most plan to expand their use
Helping clients with greater consistency is a key reason that advisory firms and brokerage houses are increasing their use of model portfolios.
While 84% of investment platforms across Canada and the US already offer model portfolios, the expansion includes adding ESG and alternative options.
That’s one of the findings of new research by Natixis Investment Managers which polled 133 North American professional fund selectors among a global survey of 400.
The results also revealed that more than half of these platform gatekeepers say moving a larger share of client assets into models is a key objective in the year ahead.
“Model portfolios offer the best of both worlds: scale and personalization,” said Marina Gross, Executive Vice President of Natixis’ Portfolio Research and Consulting Group. “By operationalizing portfolio construction, with centrally guided investment research, asset allocation and rebalancing, model portfolios make the investment process more efficient and responsive to changes in the market and clients’ goals.”
What’s the benefit?
While there are several reasons for using model portfolios, the results show that providing clients with a more consistent investment experience is the top one (60% of respondents said so).
Their use also frees up time for advisors to focus on client needs and this is perhaps one key reason why just 19% of fund selectors reported a struggle to convince FAs of their merits.
However, there are challenges including providing customization options within their model portfolio offering (45%) and knowing when to add new or enhanced models (39%).
Respondents also pointed to model portfolios providing an extra layer of due diligence in investment selection.
The year ahead
With selectors expecting active management to be favoured by market conditions in the year ahead, 67% report that in 2020, the actively managed funds on their platforms outperformed during the market downturn. Seventy percent expect actively managed funds to outperform passive in 2021.
ESG-focus is the most-cited enhancement to offerings that selectors expect to add in the next year or two and most say that models make it easier to implement ESG across portfolios.
Models with thematic sleeves that focus on areas such as longevity or disruptive technology (45%), alternative (36%) and tax-aware models (32%) are also expected to be introduced in the coming 12-24 months.
Respondents believe that market volatility – stocks and bonds – will continue this year and there is likelihood of a correction for tech and cryptos.
Six in ten (62%) fund selectors also believe the demand for private equity investments will increase in the year ahead, particularly given their resilience during the pandemic.
Selectors are likely to increase their holdings of private equity, private debt, infrastructure, and real estate assets.
The full report, “Headed for the Light,” is available for download at im.natixis.com/us/research/professional-fund-buyer-survey-2021-outlook.