Model portfolio investing is a booming corner of money management, with BlackRock and many of its competitors benefitting from the popularity of bundling funds into ready-made strategies. — Bloomberg
NEW YORK: BlackRock Inc expects the model portfolio realm of money management to grow to a US$10 trillion (RM46.7 trillion) business over the next five years.
The strategy, through which asset managers and investment platforms compile ready-made packages that are then sold to financial advisers, is set to grow from around US$4.2 trillion (RM20 trillion) currently, according to Salim Ramji, global head of iShares and index investments at the asset manager.
“It’s going to be massive,” he said on Bloomberg Television’s ETF IQ. “It’s the way in which more and more fiduciary advisers are doing business, and, as a result, that’s the way in which we’re doing business with them.”
Model portfolio investing is a booming corner of money management, with BlackRock and many of its competitors, including Vanguard and Charles Schwab, benefitting from the popularity of bundling funds into ready-made strategies.
Allocation shifts in model portfolios, which usually package exchange-traded funds (ETFs) and other funds into these off-the-shelf parcels, are sometimes suspected to be behind dramatic flows of money.
Model portfolios make up a “massive” part of the iShares business, Ramji said.
About two years ago, they comprised about a third of its US flows. Last year, they grew by more than half.
In fact, Ramji said, the strategy has grown so fast that when BlackRock hosted its first model conference about six years ago, it had trouble filling a room, but two weeks ago, it hosted a full auditorium.
“It’s really just changed from being a cottage industry to being something that’s a real force for every fiduciary wealth adviser in the United States,” Ramji said, adding that he sees it soon growing in Europe, Japan and elsewhere.
BlackRock commands significant stature on Wall Street thanks to its US$9 trillion (RM42 trillion) in assets under control.
It also ranks as the largest ETF issuer, with trillions spread across more than 1,000 funds.
In fact, the company sees the ETF business booming further in the coming years, thanks in part to model portfolios, which the firm’s Larry Fink cited as a reason the global ETF industry could balloon to US$15 trillion (RM70 trillion) in the years ahead.
“In terms of the scale effects for us, we can do a lot more by really looking at this through the lens of a portfolio, and we can gain a lot more inflows and a lot more in assets as a result of it,” Ramji said. — Bloomberg
