Packaged portfolios outperform adviser-driven: Cerulli

Packaged portfolios “frequently” outperform their adviser-driven counterparts, according to new research published by Cerulli Associates, the Boston-based global analytics firm. 

It said the out-performance by the packaged portfolios was typically due to the quality of the asset managers  that are usually involved in putting together such packaged portfolios, as well as by the fact that investors typically stay invested in such portfolios throughout performance downturns, rather than chasing growth elsewhere, as is more common among those who have adviser-advised and discretionary portfolios.

“Home-office packaged assets under management have experienced strong growth during the past decade, expanding at a 22.8% compound annual growth rate between 2005 and 2015,” said Frederick Pickering, a data analyst at Cerulli who was involved in the research.

“These platforms offer scale-able advice for small-balance accounts, which drive their growth.”

Cerulli said that digital advice firms are increasingly partnering with advisers to deliver packaged offerings to low-balance accounts in a scale-able way. These platforms are heavily packaged, with asset allocation happening at the home office, and manager selection consisting of grading exchange-traded funds by various factors, such as cost, liquidity, and tracking error.

“When compared with portfolios that are adviser-controlled and client discretionary, packaged portfolios generate stronger returns,” Pickering said.

“Cerulli believes this performance results from a combination of selecting superior managers and staying invested during market downturns and recoveries.”

Packaged platforms are ‘less tactical’

Pickering added that when analysing the difference in performance, packaged platforms are “less tactical” than portfolios in open arrangements.

“We observe this effect when the market declines and packaged portfolios decline further than their open counterparts,” he said.

“After the market reaches its low point and prices recover, we observe that packaged portfolios generate higher returns than their open counterparts.”

Further information on Cerulli’s findings concerning the relative performance of packaged portfolios and those chosen by advisers is available in the May issue of the US edition of  The Cerulli Edge, which is available to subscribers.

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Gary Robinson
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