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Here Are Morningstar's Top-Rated Model Portfolios

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What You Need to Know

  • BlackRock's series used active asset allocation; Vanguard's didn't, but both charged low fees.
  • Morningstar is expanding its ratings on model portfolios as their numbers explode.
  • More advisors are using model portfolios because they free up time to spend with clients and to grow their businesses.

BlackRock’s Target Allocation ETF and Vanguard CORE Model Portfolio received the top rating —Gold — in Morningstar’s newly expanded analyses of model portfolios.

Two American Funds models — Growth & Income and Tax Aware Growth and Income — came in second place with silver.

The BlackRock series “benefits from a dedicated model portfolio team, strong exchange-traded fund building blocks, a thoughtful and relatively active asset allocation approach and rock bottom fees,” according to a new Morningstar model portfolio report written by Leo Acheson, director of multi-asset ratings on the global manager research team, and Jason Kephart, a strategist on the multi-asset manager research team.

Vanguard’s gold-rated series also had “an extremely appealing price gag along with top notch, highly diversified underlying index funds,” but it rarely makes portfolio changes or uses tactical tilts, unlike BlackRock, according to the report.

Morningstar Expands Model Portfolio Analysis

Morningstar has expanded its coverage of model portfolios in response to their increasing number as asset managers react to the growing demand from financial advisors. It is now analyzing 139 unique portfolios that are part of 24 series of model portfolios, compared with 63 unique portfolios and 12 series a year ago. The 24 series were from 18 different asset managers.

“We’re trying to raise awareness of the trend and encouraging people to report to us,” Kephart said.

As of March 1, 1,500 unique model portfolios were reported to Morningstar Direct, the company’s web-based research platform that advisors use to access comprehensive data and independent analysis on thousands of investments. That’s about 50% more than the number of model portfolio reports Morningstar received a year ago and far more than the number that Morningstar actually analyzes.

Model portfolios are not directly investable or regulated so there are no reporting standards or publicly distributed data on performance or asset flows as there are for the underlying funds that comprise the portfolios. Morningstar’s analyses of model portfolios therefore can be useful for advisors that are increasingly drawn to use them because their use gives them more time to spend with clients and to grow their business. Model portfolios can also provide a consistent experience for clients that is scalable, said Kephart.

A recent Morningstar survey of 18 model portfolio providers found that low fees, open architecture and the blending of active and passive portfolios were the most important criteria advisors use when choosing portfolios for the next three years.

Of the 24 series of model portfolios that Morningstar analyzed, 10 were rated neutral, two bronze-neutral, eight bronze, two silver and two gold. None received a negative rating. For 15 of the 24, the managers invested in actual assets that mimic the unique portfolios as a check on their track record.

“Morningstar plans to continue increasing manager research coverage of model portfolios to shed light on this relatively opaque space for investors,” a spokeswoman said.

(Image: Shutterstock)