Demand from financial advisors is driving fund managers to incorporate separately managed account strategies into their model portfolios, according to a recent report.
Typically, model portfolios tap mutual funds and exchange-traded funds, but large asset managers are now seeing demand for SMAs, given their customization and tax-management capabilities, Matt Apkarian, a senior analyst at Cerulli, told FA-IQ sister publication FundFire.
“Advisors are looking beyond performance,” said Apkarian, according to the publication. “To differentiate, what advisors want might be model portfolios that are outside of that target risk category … the outcome oriented or investment objective completion models, which can be significantly more differentiated, whether they’re offering tax-aware strategies or [environmental, social and governance] focused strategies.”
Assets in model portfolios reached approximately $2 trillion by the end of last year, a 22% increase year-over-year, FundFire writes, citing the latest data from Cerulli.
The company took into account only home-office model portfolios and those offered by asset managers, and it excluded advisor-built models, according to the publication.
The jump in assets is in part attributed to home offices steering advisors to outsource investment management, and that will bolster model portfolio assets in a “highly concentrated” space in which home offices building their own offerings will further compete with asset managers and third-party strategists, Cerulli said, according to FundFire.
Bryce Skaff, co-head of Dimensional Fund Advisors’ global client group, says most advisors are tapping the firm’s SMAs on independent custodial platforms, according to FundFire.
“Will you see us expanding with more of an offer that would be our SMAs inside UMA structures in the broker-dealer community? I expect to see steps in that path,” he added, according to the publication.