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Model portfolios: what are they and why are they so popular?


Demand for model portfolios in the UK is growing, according to recent research from independent research company Cerulli Associates. According to Cerulli, their popularity is driven mainly by the fact that they can embed diversification, rebalancing and access to investment management expertise. We take a closer look.


What are model portfolios?

Model portfolios are pre-constructed baskets of funds selected by the portfolio manager on behalf of investors. In them you will find a diversified mix of asset classes, such as stocks and bonds, often from a wide range of countries and regions.

They enable investors to access many of the benefits previously only available to people using a bespoke discretionary fund manager. They can be built to match different investment strategies and or risk profiles. Investors find them attractive because they simplify the investment process and provide a structured approach to building a diversified portfolio.

The portfolio manager, usually a financial professional with considerable experience and extensive resources, chooses the funds that they believe will enable each portfolio to meet and remain within its stated investment objectives and risk level parameters. To achieve this they may spread your money across different asset classes, sectors and geographic regions. The manager changes the funds in the portfolio when they think doing so will give it a better chance of meeting its mandate.


Professional management

Model portfolios are managed by financial professionals with expertise in asset allocation and investment strategies and who have access to extensive research and analysis. This contrasts with individual investors who may not have the time, knowledge or inclination to manage their investments actively.

Diversification helps spread risk across different types of investments, reducing the impact of poor performance of any single holding. Model portfolios are often constructed to include a mix of asset classes and types of investments.
Risk management

Investing involves taking risks with your money. In general, there is a direct relationship between risk and potential returns. Model portfolios are designed with specific investor risk profiles in mind. With the help of a financial planner, you can choose a model portfolio that aligns with your risk level and investment goals.

Model portfolios provide a consistent and systematic approach to investing. This is widely accepted as being a better approach than making ad-hoc decisions based, for instance, on sentiment or market fluctuations.

They can be adapted to different investment goals, time horizons and risk tolerances, which accounts for the considerable breadth of options now available. Investors can choose a model portfolio that best fits their individual financial situation and preferences.
The benefits of taking professional advice

Deciding how and where to invest your money to give it the best chance of achieving your objectives involves taking into account a number of factors. Some relate directly to you, for example how long you are investing for or whether you want your investments to be environmentally-friendly. Others relate to external factors such as global markets or the costs you pay.

That is why at MKC Wealth we believe that investing is best done with the help of a qualified, independent financial planner. They will guide you through the myriad of issues you should take into account and recommend the options they consider a good match to your preferences and goals.


30 November 2023


Important Information

The material in this article is for information only. The article is for UK residents only. It is the property of MKC Wealth Limited and should not be distributed without prior permission from this business. The information contained in this article is based on our interpretation of  HMRC legislation which is subject to change. The value of your investments and the income from them may go down as well as up and neither is guaranteed. Changes in exchange rates may have an adverse effect on the value of an investment. Changes in interest rates may also impact the value of fixed income investments. The value of your investment may be impacted if the issuers of underlying fixed income holdings default, or market perceptions of their credit risk change. There are additional risks associated with investments in emerging or developing markets. Investors could get back less capital than they invested. Past performance is not a reliable indicator of future results. MKC Wealth Ltd does not provide taxation advice. Taxation advice is not regulated by the Financial Conduct Authority.