Model portfolios offer asset allocators a variety of benefits and given the expansion of this space, it appears those perks – and model portfolios themselves – are being embraced.
Data confirms registered investment advisors (RIAs) continue embracing model portfolios, many of which are built on foundations of exchange traded funds. At the end of the first quarter, advisors were directing approximately $350 billion in client assets to model portfolios – an impressive 22% increase over the trailing nine-month period.
Model portfolios have been around for decades and certainly have been boosted by the booming exchange traded funds industry, but there’s still room for evolution in this space. One area ripe for advancement is making model portfolios targeted to specific client bases.
There’s some element of that inherent in many model portfolios, but BlackRock is taking things even further, unveiling a new series of model portfolios specifically aimed at female clients – an increasingly important audience for advisors.
Why It’s Important
First, let’s be clear this isn’t an endorsement of a particular issuer’s model portfolios over another. It’s on advisors to perform their own due diligence and draw their own conclusions.
With that disclaimer in mind, it is notable that there model portfolios geared specifically toward women. Several factors advisors are already aware of cement this assertion. Women live longer than men, they, on average, earn less and women are more apt to spend time out of the workforce.
Clearly, those are critical points to consider, but many model portfolios don’t take those factors into account because the products are one-size-fits-all. Those model portfolios don’t acknowledge the unique needs of female clients.
“This investment strategy is one way in which BlackRock looks to help women achieve better long-term financial outcomes while we - as a society - continue to work toward closing the gender pay gap and finding more equitable solutions for caregiving,” said Stephanie Epstein, Global Head of Models Infrastructure, who also co-leads BlackRock’s Women’s Initiative & Allies Network (WIN).
BlackRock’s women-focused model portfolios address three stages of life– early, mid and late. The early stage portfolio is applicable for younger women, including those new to the workforce, that have the power of time on their sides and the ability to take on more equity-level risk. The mid-stage model portfolio looks to dial back risk as women near retirement while the late-stage model portfolio aims to provide consistent income.
Asset classes featured in the model portfolios include basic fixed income strategies, inflation fighters such as commodities and Treasury Inflation-Protected Securities (TIPS), real estate and a broad swath of equity exposures, including domestic large- and small-caps as well as international equities – both developed and emerging markets.
Model Portfolios Address Primary Concern
BlackRock’s women-oriented model portfolios address a concern rival model portfolios falter on. That being lack of equity exposure, which is highly relevant to female clients because, as noted above, women, on average, earn less than men, and some may spend time out of the workforce, caring for children or elderly family members.
As such, women that are over-allocated to bonds, particularly in today’s rising rate environment, risk being left with inadequate returns as they near retirement.
“Most long-term investment products don’t consider three factors unique to women — life expectancy, income gaps, and employment gaps — missing important inputs that could impact women’s long-term investing success,” adds BlackRock.
Perhaps these new model portfolios will be successful in addressing those issues. Let’s hope that’s the case.