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Model Portfolios: The Core Foundation

  • Model Portfolios continue to gain popularity both locally and abroad. In Australia investors can now select from 1,100 investment strategies.1
  • One third of current model portfolio users acknowledge this solution can be used to provide an effective portfolio core.2
  • Moreover, Australian advisers indicate on average they allocate 76% of their clients total investable assets into managed accounts.2
2.5 min read
ETF Model Portfolio Strategist

The plethora of investment products coupled with number of investors transitioning to retirement and the intergenerational wealth transfer calls for expert guidance.

Guiding clients’ financial lives requires significant time and resources — from understanding their goals and risk tolerance to defining their investment objectives; assisting with tax, education and estate planning; and navigating a host of personal and family issues. As assets grow, finding the time to serve clients and attract new business can become complicated.

On average, advisers are spending more time on portfolio management (23.1%) than on either client-facing activities (14.7%) or prospecting new clients (11.3%).3 This does not reflect the priorities identified most often by advisers: deepening relationships with existing clients and acquiring more clients. A growing number of advisers are embracing model portfolios to improve operational efficiency and respond to client needs. They are selecting model portfolio solutions that fit their business and align with their investment management philosophy. Model portfolio users are getting more time back in their day to do what they do best, engage with their clients.

The notion of a core-satellite strategy is not a new one. But where do model portfolios fit? Are they a core component or should they be used as a satellite? Many model portfolio users have chosen to implement models as a core allocation in clients portfolio. This approach achieves a core-satellite strategy by holding the model portfolio as a “core” holding, which is a relatively diversified pool of cost effective investments, where additional investments can be added as a “satellite” positions around their core in the hopes of generating alpha. In Australia one third of financial advisers have implemented a managed account as a core portfolio holding for their clients portfolio.2 We believe a large driver for using models as core is cost effectiveness. Adviser can manage the costs associated with investing, without detracting from performance.

Core Portfolio Considerations

  1. How much of the clients portfolios is the core?
  2. Correlation between core assets and satellite assets.
  3. Investment Approach for core and satellite assets. How do you cohesively articulate this combination?

Looking to implement a core satellite model portfolio strategy?

Speak with the State Street Global Advisors to understand the best way to implement a model portfolio as a core. We can provide correlation analysis between the core and satellite to provide confidence when implementing a core satellite approach.

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