Is a model portfolio the way to go during a downturn?

By Grace Ormsby

April 27 2020
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The use of model portfolios – a type of managed account – can provide investors with a range of benefits during a downturn such as the COVID-19 crisis, an investment expert has touted.

State Street Global Advisors’ SPDR ETF Asia Pacific distribution, Meaghan Victor, has observed first-hand that in just a matter of years, the uptake of managed accounts and model portfolios has ballooned in Australia, and there’s plenty of reasons for this.

“Financial planners are increasingly allocating to managed accounts, and this trend is likely to continue,” she outlined.

“That’s because managed accounts offer investors transparency, cost-effectiveness, access to professional funds management and access to direct shares (via ETFs).”

According to Ms Victor, managed accounts are “particularly helpful in volatile and uncertain times, when investors are looking for solutions that are transparent with open architecture”, like the current COVID-19-fuelled downturn.

By drawing on expert resources such as model portfolios, a financial adviser can better “help navigate this complicated world”.

The implementation of a model portfolio can free up your adviser to “focus on their most important role: working in partnership with you to help you achieve your goals”, Ms Victor considered.

“For example, your financial adviser may recommend investing in a model portfolio built by institutional investment managers. Partnering with those managers gives you access to the resources and expertise of some of the world’s leading investment teams.”

But what exactly is a model portfolio?

A model portfolio is a collection of assets owned by the underlying investor and continually managed by professional investment managers, the adviser explained.

Model portfolios employ a diversified investment approach to target a particular balance of return and risk or portfolio objective and provide the individual who is invested in the model ownership of the underlying assets, such as shares.

This model portfolio will be continually managed by an investment manager and can employ diversified investment approaches to either target a particular balance of return and risk or a specific portfolio investment objective.

In Australia, the typical investor will access model portfolios via a managed account that is provided by a financial planner, with a managed account being the general term that refers to the type of product or service where the underlying securities are owned by the investor.

And why is a model portfolio a good option during COVID-19?

As already outlined, managed accounts – and, therefore, model portfolios – can offer investors transparency, cost-effectiveness, access to professional funds management as well as access to direct shares.

“In volatile and uncertain times, investors are looking for solutions that are transparent and ‘open architecture’,” Ms Victor flagged.

“Model portfolios are a great way to achieve this,” she said.

That’s because it is easy to identify the asset classes that are impacting a model portfolio’s overall performance – an attribute Ms Victor says “investors will appreciate in uncertain times”.

The premise of “open architecture” is also of strong significance – this is the term used when there is more than one investment manager’s products in the model portfolio.

Ms Victor explained that this is important because it diversifies the investor’s exposure with respect to investment manager risk, while the access to professional funds management that the service provides is also of worthy consideration.

“The level of experience you get with institutional strength funds management certainly helps when navigating volatile and uncertain markets,” she offered.

“Through model portfolios, your adviser can offer you access to the teams that manage assets for some of the largest, most discerning investors in the world,” the investment expert outlined.

“Their resources and expertise can help you build towards the future you envision – whether that means preparing for retirement, buying your first property, supporting kids or ageing parents, preparing a financial legacy, donating to cherished causes or traveling the world.”

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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