The Growing Need for Global ETF Model Portfolios

Implications for advisors, brokers and investor platforms


The Growing Need for Global ETF Model Portfolios

Implications for advisors, brokers and investor platforms

January 2019

By Matthew Forester

Advisors and investors across the world are adopting globally diversified model strategies. Exchange-traded funds (ETFs) are at the forefront of those changes.


Matt Forester, Chief Investment Officer, BNY Mellon’s Lockwood Advisors, Inc. (Lockwood) and Tony O’Brien, Director, Asset Servicing, BNY Mellon discuss the growing adoption of model portfolios across advisor, broker and investor platforms in US & Europe.


How are advisors, brokers and investors using ETF models?

Matt:  Through Lockwood’s Managed360® Platform, a turnkey advisor solution available to BNY Mellon’s Pershing LLC1 clients and offered through Lockwood2, we work with many advisors and brokers. They span bank, insurance, traditional and independent brokerage channels. We have also expanded our options for registered investment advisors (RIAs) at BNY Mellon’s Pershing Advisor Solutions. These venues give us a good perch to understand how advisor behavior may be changing and how they are altering their use of models.


We’ve seen widespread adoption of global multi-asset portfolio solutions. Not all of the growth is occurring in all-ETF portfolios, but the fastest growth has been occurring in lower cost and simple beta solutions. However, healthy growth is still occurring in mutual fund and ETF wrap portfolios. Advisors seem cost sensitive, but somewhat indifferent to whether the solution is single manager or multi-manager.


Tony:  In Europe, the landscape is significantly different. ETFs themselves are sold through a relatively narrow group of authorized participants (APs) and bought overwhelmingly by institutional investors. That is changing but slowly and we do see a healthy uptick year on year in ETF adoption by retail investors and, by implication, the platforms that those investors use to access direct investments. Having said that, there is certainly a growing use of ETFs to construct model portfolios, starting with the use of ETFs to deliver exposure to broad market indices and moving to deliver some level of alpha through factor focused products. I believe that trend is really a reflection of the ease of entry that ETFs offer.


What kind of models are they adopting?


Matt:  Target risk models, especially those in the middle of a typical risk profile (60/40 or 70/30 equity/fixed income allocations) have been popular. Other advisors have been adopting portfolios with specific objectives like income, capital preservation or appreciation. For some advisors, objective-based portfolios fit with their sophisticated planning needs. Increasingly, alternatives play a supporting role in more portfolio models. Alternatives can modify a risk profile or enhance a potential return stream. Income models (and income solutions in general) have continued to gain attention in a low interest rate environment.


Tony: We’ve seen heavy use of ETFs in liability matching products where our clients use a variety of wrappers to gain targetted exposure to various asset classes. More and more, ETFs as appropriate products are used as building blocks – transparent, easy to access and easy to value.


Why do you think advisors are using more model portfolios?


Matt:  One catalyst has been increasing time pressure on advisors and their business models. They have begun to feel more comfortable with outsourcing more aspects of manager selection and due diligence. They are also allowing leading asset managers to use their broad array of funds in a more comprehensive portfolio allocation. Some advisors place value in allowing a manager to select from external solutions or a mix of internal and external funds.  


Other catalysts for increasing use of mostly passive models (ETF or index mutual funds) have been cost pressures and management of tax liabilities. In an uncertain market environment, advisors can’t control the returns they receive from volatile capital markets, but they can manage their costs and likely tax liabilities. For ETFs, there are now roughly 100 fund sponsors in the U.S. Competition has made it more difficult for advisors to understand all of the roughly 2,000 ETFs in the U.S. marketplace and many are outsourcing ETF manager selection.


Tony: Again, in Europe it is not necessarily the investment intermediary community that is leading the use of ETFs within portfolios but rather the managers of discretionary assets. However, the use has been driven by many of the same factors as in the U.S. – cost being foremost.


What’s on the drawing board?


Matt:  We’ve been working on some actively-managed/passively-managed blend models for the Latin American market. Those models have some ETF exposure. Again, we’re seeing trends in Latin America that tend to mirror the experiences of U.S. based advisors.


We’re also focused on building some better tools for advisors to match their end investors with appropriate portfolios. Many of the model providers, including our own Lockwood proprietary branded portfolios, have distinct house investment views. Those views show up in the risk allocations they adopt in their model strategies. We think the industry can do a better job of making sure advisors are more aware of how models might behave in different capital market scenarios or align better with client needs.  


Tony: In Europe, with a slightly different dynamic, we are seeing ETFs more and more as a wrapper for strategies. That means that we will likely see more and different strategies being delivered through ETFs. This in itself is leading to the development of some interesting platforms that are designed to give infrastructure to managers who have the strategy expertise but not necessarily the means or the inclination to build their own. This increases speed to market and helps manage cost.


1 Pershing LLC, a subsidiary of The Bank of New York Mellon Corporation, is not a registered investment adviser and does not offer investment advisory products, programs or services.


2 Investment advisory and overlay services provided by Lockwood Advisors, Inc.

Matthew Forester

Chief Investment Officer and Director of Investments, Lockwood


©2019 Lockwood Advisors, Inc. Lockwood Advisors, Inc. (Lockwood) is an investment adviser registered in the United States under the Investment Advisers Act of 1940, an affiliate of Pershing LLC and a subsidiary of The Bank of New York Mellon Corporation (BNY Mellon). Pershing LLC, member FINRA, NYSE, SIPC. Trademark(s) belong to their respective owners.

Lockwood is not registered as an investment adviser in any jurisdiction outside of the United States.


The statements contained herein are based upon the opinions of Lockwood and BNY Mellon and the data available at the time of publication and are subject to change at any time without notice.

Exchange-traded funds (ETFs) are investment vehicles that are legally classified as open-end investment companies or unit investment trusts (UITs), but differ from traditional open-end investment companies or UITs. ETF shares are bought and sold at market price (not net asset value) and are not individually redeemed from the fund. This can result in the fund trading at a premium or discount to its net asset value, which will affect an investor’s value. Shares of certain ETFs have no or limited voting rights. ETFs are subject to risks similar to those of stocks.


This communication does not constitute investment advice, is for informational purposes only and is not intended to meet the objectives or suitability requirements of any specific individual or account. An investor should assess his or her own investment needs based on his or her own financial circumstances and investment objectives.

For more information about Lockwood, as well as its products, fees and services, please refer to Lockwood’s Form ADV Part 2, Wrap Fee Brochure for Managed Account Advisor, Wrap Fee Brochure for the Lockwood Sponsored Program, Wrap Fee Program Brochure for the Managed360® Program, Wrap Fee Brochure for Co-Sponsored Programs or the Firm Brochure, as applicable, which may be obtained through your financial advisor or by writing to: Lockwood, Attn: Legal Department (AIM #19K-0203), 760 Moore Road, King of Prussia, PA 19406, or by calling (800) 200-3033, option 3.


About BNY Mellon's Lockwood Advisors, Inc.


BNY Mellon's Lockwood Advisors, Inc. is a leading provider of managed account solutions. As a program sponsor, Lockwood offers access to some of the industry's leading investment managers, provides independent research on separate account managers, acts as an overlay manager by managing accounts based on third-party models, and develops advisory solutions designed to help investment professionals meet the diverse needs of their clients. Lockwood also offers discretionary portfolio management solutions through financial institutions and independent registered investment advisers. Lockwood Advisors, Inc. is an investment adviser registered in the United States under the Investment Advisers Act of 1940, an affiliate of Pershing LLC and a wholly owned subsidiary of The Bank of New York Mellon Corporation (BNY Mellon).


About BNY Mellon's Pershing


BNY Mellon's Pershing and its affiliates provide advisors, broker-dealers, family offices, hedge fund and '40 Act fund managers, registered investment advisor firms and wealth managers with a broad suite of global financial business solutions. Many of the world's most sophisticated and successful financial services firms rely on Pershing for clearing and custody, investment and retirement solutions, technology, enterprise data management, trading services, prime brokerage and business consulting. Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of 23 offices worldwide, Pershing provides business-to-business solutions to clients representing more than seven million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. Additional information is available on, or follow us on Twitter @Pershing.


About BNY Mellon


BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of September 30, 2018, BNY Mellon had $34.5 trillion in assets under custody and/or administration, and $1.8 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on Follow us on Twitter @BNYMellon or visit our newsroom at for the latest company news.


© 2019 The Bank of New York Mellon Corporation. All rights reserved.

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