Morningstar - Q3 2022 - 28

Dispatches
75
50
TRENDS
Morningstar Keeps Up With the Growing
Model Portfolio Market
25
01/31/2003
01/31/2007
01/31/2011
01/31/2015
Model portfolios continue to gain traction,
according to the Morningstar 2022 Model
Portfolio Landscape report. They allow advisors
to outsource some, or all, of their investmentmanagement
responsibilities and dedicate more
time to other client needs and on growing
their practices.
Yield to Maturity
Libor
04/30/2022
potentially driven by large model players having
fully entered the fold. That said, 50 models
have already launched through the first quarter
of this year.
Spread to Maturity
As of March 2022, approximately $349 billion was
following model portfolios based on a combination
of surveyed data from model providers under
Morningstar analyst coverage and assets reported
to Morningstar's models database. That is
a 22% increase since June 2021, despite a highly
volatile market. BlackRock BLK led all providers,
with $50 billion of assets following its models,
though Wilshire Associates' $46 billion and Capital
Group's $41 billion were not far behind.
01/08/2010
As of May 2022, more than 2,400 models were
reported to Morningstar. Since Morningstar
launched analyst coverage of model portfolios in
March 2019, nearly 2,000 individual model
portfolios have been reported, and more than a
third of those were new launches. Model portfolio
launches were on a tear in the mid- to late
2010s, with four consecutive years when growth
in absolute models outpaced the previous
year. Over the past two years, launches slowed,
01/08/2014
01/08/2018
Morningstar's manager research analysts have
ramped up coverage-more than doubling
the total series under coverage in 2021's second
half alone. As of May 31, 2022, more than 500
individual model portfolios have forward-looking
Morningstar Analyst Ratings. Three years
after the introduction of the first ratings for
models, those series rated Silver or Bronze went
on to deliver positive alpha versus their
respective category benchmarks. Neutral-rated
series did not, on average. (None were rated
Gold at that time.)
15%
12
9
3
6
Asset-allocation models are the most prevalent;
over 70% of models reported to Morningstar
land in one of the five equity allocation
categories. These model portfolios hold a notable
fee advantage, costing 11 basis points
less on average than the cheapest comparable
mutual fund offerings.
05/31/22
Adam Millson is a senior analyst, multi-asset manager
research, at Morningstar Research Services LLC.
But as the industry and its members have aged,
a new set of challenges has emerged.
Superannuation funds once laser-focused on
accumulation are now grappling with
how to help members spend their nest eggs
in the decades after retirement.
Fiona Reynolds started her career in the
industry superannuation fund movement in
1994, coordinating the Conference of Major
Superannuation Funds, a forum for the
nascent industry to voice concerns and develop
long-term policy. Now chief executive of
Conexus, Reynolds says industry funds need to
address the challenge of retiring members.
" Many funds are still not really providing a lot
of options at retirement. Super funds with
a large membership base of retiring members and
older workers really need to be focused on
retirement, " Reynolds says.
The recently legislated Retirement Income
Covenant, which took effect on July 1,
should guide superannuation funds with their
retirement strategies. Under the RIC, these
funds will need to communicate how they will
meet the needs of this cohort.
Morningstar director of manager research ratings
and retirement specialist Annika Bradley
thinks the RIC will lead to new products that
serve members' needs in retirement.
Total Model Portfolio Launches and Activations by Year
Launches
400
100
200
300
2012
285
242
208
182
104
64
2013
120
81
2014
66
2015
2016
2017
2018
2019
2020
2021
2022*
*Annualized figure.
Note: Launches are based on a model's inception date. Activations are based on the date a reported model is added to Morningstar's database.
Sources: Morningstar Direct, author's calculations. Data as of 03/31/2022.
158
228
Activations
1,000
536
250
500
750
She also believes it is an opportunity for
superannuation funds to be more proactive around
understanding their members.
28
" Superannuation funds, many of them not-for-profit,
with large pools of members are in a unique
position to develop products, particularly
those that derive value from risk-pooling, " Bradley
says. She says that some " retirement-incomelike "
solutions are already in the market, including
Mercer LifetimePlus, QSuper Lifetime Pension,
and Magellan FuturePay.
" All are very different solutions, and one key
challenge for investors will be comparing products
and understanding whether they are right for
them, " Bradley says.

https://www.morningstar.com/stocks/xnys/blk/quote https://www.morningstar.com/authors/2334/adam-millson

Morningstar - Q3 2022

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