The Asset Allocation Model Portfolio Space Is Crowded, But Opportunities Remain

September 12, 2022 — Boston

While managers and strategists are facing an increasingly competitive marketplace, the chance to win assets and collaborate with distribution partners still exists through model portfolios

This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes trends in asset class flows as of July 2022, explores the rise of dual-contract separate accounts, and evaluates the competitive asset allocation model portfolio space.

Highlights from this research:

  • Mutual funds and exchange-traded funds (ETFs) both witnessed a significant increase in assets during July, in line with significant rebounds in major equity market indices. Total mutual fund assets ended with more than $17.6 trillion and ETF assets climbed to more than $6.6 trillion. Despite a turnaround month for mutual funds in terms of asset growth, net flows remain negative for the vehicle, bleeding more than $50 billion. For ETFs, net flows came in just under $40 billion for July.
  • Dual-contract separate accounts, pioneered by industry founders in the 1970s, experienced 16.5% compounded annual growth in the past five years. They remain important because they are used by advisors moving to new firms who do not have single-contract arrangements with the separate account managers used by the advisor. Dual-contract accounts are also used by advisors who function as consultants for small endowments, foundations, and pension plans. In addition, advisors to the wealthiest tier of investors can use their clients’ sizable accounts to negotiate low fees with subadvisors.
  • As more home offices push advisors to seek an outsourced investment solution in lieu of acting as a portfolio manager themselves, Cerulli anticipates that the asset allocation model portfolio space will grow in coming years. While the assets in these fully allocated model portfolios are poised to climb, asset managers and third-party strategists will continue to encounter a crowded marketplace and robust competition from home offices that create these portfolios using in-house resources and expertise. Asset managers and strategists must constantly seek to differentiate their offerings. One large opportunity that Cerulli sees is the implementation of separately managed accounts (SMAs) within these model portfolios.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Monthly Product Trends, August 2022 Issue.

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