10 Best Model Portfolios Of 2024
Building their investment portfolio from the ground up can intimidate many investors. For this reason, many financial advisors provide model portfolios to their clients; these are investment formulas created by qualified wealth managers. Advisors can modify the models to each client's unique objectives and risk tolerance.
Model portfolios employ a transparent strategy to target a balance between risk and return through diversified investing. Thousands of model portfolios exist; most are investment products offered by large asset management firms, and they follow various strategies with different fees.
Here are ten of the best model portfolios on the market to help regular investors better understand this expanding category. The 2023 Model Portfolio & SMA Strategies report from The Wealth Advisor and the 2022 Model Portfolio Landscape report from Morningstar have selected model portfolios featured in our list.
Clark Capital Management Group's Navigator Small Cap Core U.S. Equity model portfolio is a long-only investment strategy concentrating on high-quality, inexpensive small-cap firms pursuing interesting long-term objectives. Although it tries to produce less volatility than its benchmark, the Russell 2000 index is the portfolio benchmark.
The stocks in this model portfolio have low earnings volatility and substantial competitive advantages. It identifies businesses with superior anti-fragility and compelling value and improves business prospects through a systematic, research-backed process.
The Navigator Small Cap Core U.S. Equity model has produced a net average annual return of 15.7% (after fees) over the last three years, while its benchmark has made an average return of 10.8%. The portfolio levies a 3% yearly advisory fee.
Managed by Alpha Vee Solutions, the Alpha Vee Green Transportation portfolio lets investors profit from increases in the green transportation supply chain. The portfolio invests in suppliers of electric vehicles and manufacturers of their parts, such as those who make batteries, fuel cells, sensors, power trains, autonomous cars, and other materials.
This model portfolio owns publicly traded companies with a minimum average daily trading volume of $1 million and a market capitalization of at least $100 million that trade on significant U.S. exchanges. Compared to the S&P 500, which returned 13.4% during the same period, the Alpha Vee Green Transportation portfolio has produced an annual return of 12% over the past three years.
The BlackRock 80/20 Target Allocation Fund provides a model portfolio with 20% investments in fixed-income instruments and 80% stocks. This is an excellent option for investors comfortable with a more aggressive risk profile because it has low fees and a significant allocation to equities.
The composite benchmark for this model portfolio consists of multiple indexes. 56% comprises the MSCI ACWI Index, 24% comprises the MSCI US Index, and 20% comprises the U.S. Universal Index. The portfolio has produced an average annualized return of 7.1% over the last three years, while the benchmarks have returned 6.8% on average.
With a net expense ratio of 0.29%, the BlackRock 80/20 Target Allocation Fund owns 16 funds, including third-party mutual funds, iShares ETFs, and Blackrock funds. Before June 2015, the fund was known as the BlackRock Aggressive Growth Prepared Portfolio and employed distinct investment strategies.
The Clark Navigator SMID Cap Core U.S. Equity model portfolio looks for stocks that show accelerating business momentum, are undervalued according to several valuation metrics, and can navigate shifting economic conditions.
The main objective of the portfolio is to provide steady returns over extended market cycles. This one is comparable in structure and management to the Clark Navigator Small Cap Core U.S. Equity portfolio. It incorporates mid-cap stocks and the Russell 2000 as its benchmark.
The Navigator SMID Cap Core U.S. Equity model has produced a net average annual return of 13.9% (after fees) over the last three years, while its benchmark index has returned 12.2%. The model investment advisory fee for the portfolio is 3%.
The American Funds Retirement Income Portfolio: This enhanced model portfolio prioritizes long-term capital preservation and income generation. It is a good option for investors who want a stable income and are nearing retirement.
The American funds in the portfolio are a combination, mainly from the growth-income, balanced, and equity-income categories. About 43.5% of the portfolio comprises U.S. stocks, 27.5% U.S. bonds, 18.4% U.S. non-equity, 5.9% U.S. cash and equivalents, and 4.7% U.S. non-bonds.
The portfolio's average annualized three-year returns are only 4.7%, which is lower than the returns of other portfolios on this list because it is more income-oriented. Its bond holdings have an average weighted yield of 3.9%. The annual expense ratio for the portfolio is 0.64%.
The BlackRock 100/0 Global Allocation Selects model portfolio invests in exchange-traded and mutual funds. The management team uses factor, index, and active investing strategies.
The fund owns both third-party funds and iShares ETFs. The top holdings are the Invesco S&P 500 GARP ETF (SPGP), the iShares MSCI USA Quality Factor ETF (QUAL), and the Schwab US Large-Cap Growth ETF (SCHG).
Over the last three years, this model portfolio has produced an average annualized return of 13.4%, while its benchmark, the MSCI World Net Total Return Index, has made an annual return of 16.4%. The portfolio levies a 3% yearly advisory fee.
The U.S. Sector Opportunity portfolio of Clark Capital Navigator is a momentum play that steers clear of underperforming sectors and makes investments in robust and outperforming market and industry sectors. When market conditions change, managers monitor the markets and adjust holdings.
This model portfolio holds six to sixteen ETFs, depending on the market's state. It has produced a net average annual return of 12.2% over the last three years, as opposed to its benchmark, the S&P 500, which has made a yearly return of 14.6%. The portfolio's net returns show a 3% annual advisory fee subtracted out.
The Morningstar Aggressive Growth-Tax Sensitive portfolio includes diverse domestic and international equity mutual funds. According to Morningstar, only financially secure investors with a time horizon of at least 15 years and a high tolerance for market volatility are advised to invest in the portfolio.
80% to 100% of the assets in this model portfolio are stocks set up to minimize taxes. Its average return over the last three years is 16.4%.
Like the other two Clark portfolios mentioned above, the Clark Navigator All Cap Core U.S. Equity model portfolio adopts a similar strategy. Still, it concentrates more on large-cap stocks by using the Russell 3000 as its benchmark index. As of June 2023, its top holdings were Alphabet (GOOG, GOOGL), Apple (AAPL), and Microsoft (MSFT).
Like its siblings, the All Cap Core portfolio is concentrated on stocks with improving business prospects, a sustainable competitive advantage, and a market price below fair value. It has produced a net average annual return of 11.5% over the last three years as opposed to its benchmark's 13.8% return. A 3% yearly advisory fee is subtracted from net returns.
At least 70% of the BlackRock Global Long-Horizon Equity model portfolio assets are stocks, and it invests globally. Managers seek out companies with sustained competitive advantages over a long-term investing horizon. U.S. equities comprise about two-thirds of the portfolio, with financial and healthcare stocks having enormous weights.
The model portfolio has yielded a cumulative return of 767.5% since launch and a cumulative three-year return of 37.7%. Microsoft (MSFT), Otis Worldwide (OTIS), and American Express (AXP) are among the top fund holdings. The portfolio has an annual management fee of 1.5% and a maximum initial charge of 5%.
Methodology
Our analysts reviewed the top picks in The Wealth Advisor's 2023 Model Portfolio & SMA Strategies report and the Morningstar 2022 Model Portfolio Landscape report before choosing the above model portfolios.
What Is a Model Portfolio?
Consider a model portfolio to be similar to a recipe. You can create a customized portfolio of assets to help you achieve particular financial objectives by adding a healthy dose of stocks, a fair amount of bonds, and a splash of alternative investments.
Professional managers working for major asset management firms like Wiltshire and BlackRock create these pre-rolled portfolios. However, the managers do not buy the assets in the portfolio on your behalf, unlike mutual funds or exchange-traded funds (ETFs). Your financial advisor can adjust the portfolio and offer additional customization.
For this reason, blueprints are yet another excellent metaphor for operating model portfolios. Your financial advisor takes the well-diversified investment plans the professional money managers created and purchases the assets that comprise your portfolio on your behalf.
According to Morningstar's estimates, more than 2,400 model portfolios will have about $349 billion invested in them by 2022. These numerous options have a wide range of performance, which is one reason you should exercise caution when selecting your ideal portfolio.
How Do Model Portfolios Work?
Professional managers specify an asset allocation for each distinct model portfolio and then rebalance it regularly to keep the portfolio on course.
Model portfolios aim to maintain a predetermined return-to-risk ratio by holding various securities and typically use common market indexes, such as the Russell 2000 or the S&P 500, as performance benchmarks.
You're not incorrect if that sounds like an ETF or mutual fund. The main distinction is that you directly own the items that comprise a model portfolio. When you own mutual funds or exchange-traded funds (ETFs), you purchase shares in the fund, not the underlying securities.
Investors who find investing uncomfortable or reluctant to build and manage their portfolios might consider model portfolios. They also offer direct ownership of a carefully chosen, diverse portfolio of investments.
Model portfolios are also beneficial to financial advisors. Financial advisors have more time to help their clients map out their financial goals or handle tax planning, while professional managers handle the heavy lifting of portfolio design and management.
Model portfolio managers may set long-term goals for their portfolios, but there needs to be assurance those goals will be met or surpassed. In actuality, many model portfolios must achieve the desired returns, especially in the short- or medium-term.
Model Portfolios and Asset Allocation
Two fundamental concepts of investing underpin model portfolios: asset allocation and diversification. When combined, these two ideas help investors reduce investment risk.
Diversification is the process of including a wide range of investments in a single portfolio. These various investments may be made outside and inside different asset classes. By diversifying a model portfolio, managers can lessen the chance that a single underperforming investment will negatively impact the portfolio's overall performance.
The percentage of the total portfolio the managers allocate to each asset is known as asset allocation. Target allocations for every asset class are commonly found in model portfolios. One famous example is the 70/30 standard model portfolio with 70% equities and 30% bonds.
Portfolio managers typically attempt to keep asset allocations constant over time by rebalancing the portfolio regularly. Certain assets have the potential to increase in value and become disproportionately large in the portfolio when they perform well; conversely, when they perform poorly, their allocation decreases.
Managers alter the formula or plan during the rebalancing process. To maintain the portfolio's asset allocation in line with its intended purpose, your financial advisor will sell outperformed assets and purchase underperforming assets.
Benefits of a Model Portfolio
When investors select the appropriate model portfolios for their investment objectives, they can benefit from several advantages:
Thanks to model portfolios, investors can focus their attention elsewhere without worrying about their investments, which frees up valuable time.
They can be a simple solution for investors needing more confidence or experience to manage their portfolios.
Model portfolios lower investment risk through diversification.
Investors can cut fees, taxes, and other expenses using specific, inexpensive, tax-efficient model portfolios.
In addition to professional investment management supported by institutional research expertise and data analysis, investors receive direct ownership of their assets.
Model portfolios can ease the administrative strain on investors and alleviate worries about compliance and regulations.
