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Model Portfolios Lost $500 Billion in Q1: Broadridge

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Assets of model portfolios, which account for the majority of assets managed by advisors, fell by $500 billion in the first quarter, but their assets still totaled $3 trillion, according to a new report from Broadridge Financial Solutions, a global fintech firm. 

A good chunk of the loss was due to the sharp drop in stock prices, which wiped out nearly $180 billion of value. Bond fund assets grew, gaining 5% share at the expense of equity funds.

The composition of model portfolios also changed in the first quarter. By quarter-end, ETFs accounted for 43% of model portfolio assets, up from 36% two years earlier, and ETF-only model portfolios represented one-third of all model portfolios, according to Broadridge, which provides investor communications and technology-driven solutions to financial firms including wealth managers. Mutual fund-only portfolios had an even bigger share, 42%, and hybrid strategies that blended mutual funds and ETFs had a 25% share.

“The low-cost and tax-efficient nature of ETFs continues to be particularly appealing as asset managers build model portfolios,” said Andrew Guillette, senior director of Americas Distribution Insights at Broadridge Financial Solutions, in a statement. “As a result of the market environment caused by COVID-19 in the latter half of Q1 2020, we expect strategists at centralized research groups, as well as advisors running their own model portfolios, to rebalance their asset mix in the months ahead.”

(Related: Advisor Portfolio Models Underperformed When Markets Tanked)

As of the first quarter, the model portfolio industry also became more concentrated, according to Broadridge. Of the total $1 trillion in model portfolios that it tracks, 64% of assets were controlled by the top 10 asset managers, up from 62% at the end of 2019.

A separate survey from Broadridge found that financial advisors under 40 have nearly 60% of their fee-based advisory assets held in model portfolios, and 26% of those advisors expect to have all their fee-based advisory assets held in model portfolios within two years.

Model portfolios allow financial advisors more time to devote to client-facing activities and acquiring new clients.

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