Consistency benefits prompt increased use of model portfolios

Use of model portfolios by fund selectors is expected to increase in the next 12 months, particularly as they make it easier to implement environmental, social and governance (ESG) into portfolios.

A survey by Natixis Investment Managers of 400 global fund selectors found over half of professional buyers whose firms offered model portfolios, anticipated more of their clients using them in the next 12 months.

This was due to the focus on riskier, more volatile assets and concerns of potential liquidation that had arisen due to COVID-19. Respondents also felt model portfolios provided a more efficient way to implement unified managed accounts for clients (41%), models provided a greater opportunity to tailor portfolios to client needs (36%) and they provided an added layer of due diligence in investment selection (77%).

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Other pros of model portfolios were more consistent client experience, greater ability to tailor to client needs, lower cost option and more time for advisers to address client needs. However, they were challenging in providing customisation, offering models which mitigated risk and analysing performance.

Nearly two-thirds said they would add to their model portfolio offerings and enhance their lineup to include speciality strategies for ESG. Some 66% said model portfolios made it easier to implement ESG into portfolios and 61% said they were adding ESG model portfolio in response to client demand.

Damon Hambly, chief executive for Natixis IM Australia, said: “In order to adjust to the new COVID normal, fund selectors have altered both their allocation strategy and product offering to better adapt to the pandemic market and new client needs, such as growing investor demand for ESG strategies.

“Whilst fund selectors may not think the economy will recover to pre-pandemic levels this year, they are taking on these unprecedented times with a clear, measured plan that will lay the groundwork for years to come.”

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