Kathleen Gallagher

Model portfolios have shifted from niche to mainstream, both in the United States (US) and Australia, marking a major change in the financial advisory landscape. In the US, model portfolio assets are on a remarkable trajectory and are expected to reach US$3.4 trillion by 2027^[1], while in Australia, model portfolios implemented via managed account have grown nearly 30% in just one year – more than doubling over five years^[4].

This growth is driven by evolving client expectations. Over the past five years, investors have come to expect more from their advisers, increasing the demand for efficient and effective investment strategies. Model portfolios have proven invaluable, freeing up advisers’ time to focus on client relationships and strategic advice. In fact, 60% of advisers cite time savings as the main benefit, with many redirecting nearly a full day each week to highervalue activities.^[2] In the US, this benefit is realised by 55% of advisers, who use model portfolios to spend more time on financial planning.^[2]

Investor awareness is rising. In Australia, investors who know their assets are in model portfolios report significantly higher satisfaction with their advisers, valuing transparency, effective issue resolution, and portfolio optimisation. However, nearly half of investors remain unaware of their model portfolio holdings, highlighting an opportunity for further education and engagement.^[3]

By understanding the trends and developments in the US market, we can gain valuable insights that may shape the future of the Australian model portfolio market.

Alternatives: Expanding the investment universe

A notable trend is the growing inclusion of alternative investments in model portfolios. In the US, demand for private assets is driven by their potential to provide diversification, downside risk protection, reduced volatility, and enhanced return potential. Providers in this region often offer dedicated models of alternatives, rather than integrating them into multi-asset portfolios. The demand for private markets exposure is mirrored in Australia, with over a third (35%) of managed account advisers keen to access them through managed accounts.^[2] Both locally and abroad, platforms are evolving to better support the valuation and administration of these less liquid assets.

Asset allocation and investment themes

In the US, most model portfolios are risk-based (73%), with 21% focus on specific investment objectives. Strategic asset allocation (SAA) is used by 81% of models, and 63% employ tactical asset allocation (TAA).1 ETFs are increasingly preferred as portfolio building blocks, with passive ETFs representing nearly 40% of model assets.^[1] In Australia, managed account advisers allocate close to two-thirds of client assets to managed accounts as the core, supplementing with term deposits or actively managed funds as satellites.^[2] Growth-oriented strategies remain popular, with two-thirds of advisers adopting them, while risk-based strategies are used less frequently than in the US – 45% – particularly for clients with assets between $500k and $1.5 million.^[2]

Adviser experience and due diligence

In Australia, advisers are recommending fewer models — 12 on average, down from 22 in 2024 — reflecting a focus on efficiency and reduced duplication. Due diligence remains resource-intensive, with advisers using five tools on average, including investment manager reports, platform information, and research house tools. Performance is the most important factor when selecting managed accounts, followed by platform availability and fees. This trend is consistent in the US, where performance, investment policy, and fees are the top factors used to differentiate model portfolio offerings.^[1]

Locally, the benefits of managed accounts become increasingly evident over time. Advisers with four or more years of experience using managed accounts report, on average, 35% higher client inflows and FUA balances compared to newer users. The value proposition is evolving, with 38% of advisers outsourcing portfolio construction to investment professionals, 20% delivering more tailored services, and 26% are shifting their value-add from investment returns.

As the investment landscape evolves, exploring optimal strategies is essential. if you’re looking to leverage ETFs within model portfolios, visit the State Street ETF Model Portfolio webpage to discover how our solutions can enhance your investment approach with greater transparency, performance, and cost-efficiency.

By Kathleen Gallagher, Head of ETF Model Portfolio Solutions EMEA & APAC and Sinead Schaffer, ETF Model Portfolio Strategist

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Notes:
[1] Cerulli Report, U.S. Asset Allocation Model Portfolios 2024
[2] SPDR ETFs / Investment Trends 2025 Managed Accounts Report
[3] State Street Investment Management Model Portfolios: Adaptive Solutions for Advisory Growth research, December 2024.
[4] 4 IMAP’s FUM Census of Managed Accounts, as at 30 June 2025

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Kathleen Gallagher

State Street Global Advisors, the asset management arm of State Street Corporation (NYSE: STT),has announced the inclusion of the State Street Risk-Based ETF Model Portfolios on the Netwealth Super and Wealth Accelerator.

This expands the availability of the State Street Risk-Based ETF Model Portfolios – Moderate, Balanced and Growth – to Australian financial advisers using the Netwealth platform.

The State Street Risk-Based ETF Model Portfolios, employ an open architecture investment structure, meaning financial advisers, on behalf of their investors, can select a portfolio of ETFs which not only cover a range of sectors and asset classes but also invest in a range of ETFs from multiple product issuers.

Model portfolios are a collection of assets that can be attributed to an investor’s portfolio and continually managed by professional investment managers, where teams of experienced investment professionals can assist advisers to serve existing clients and attract new business more effectively.

State Street Global Advisors officially launched its ETF Model Portfolio capability in the Australian market in 2019. It now ranks among the top 20 most used investment managers by advisers who currently use managed accounts.^[1]

According to the Investment Trends 2024 Managed Accounts Report, the proportion of Australian financial advisers using managed accounts has more than tripled from 18% a decade ago to currently a record high of 56%.^[1]

And a further 19% of advisers are potential users, taking the total possible reach in coming years to potential 75%, making managed accounts the pre-eminent solution for financial advisers.1

As a result, funds under management in managed accounts have surged by 146% in five years to exceed $194.85 billion.^[2]

Further, the State Street Risk-Based ETF Model Portfolios are offered on platforms as separately managed account (SMAs). This remains the most widely used structure to implement managed accounts, with 80% of advisers implementing managed accounts with an SMA on platform.^[1]

“Since launching our ETF model portfolios in 2019, uptake has been strong. Many financial advisers appreciate model portfolios for their time saving, allowing for improved engagement of existing and new clients as well as the appropriate investment structure to implement a core-satellite investment strategy,” said Kathleen Gallagher, State Street Global Advisors’ Head of SPDR ETFs Australia and Head of Model Portfolios EMEA and APAC.

“A key factor that differentiates State Street Risk-Based ETF Model Portfolios from competitors is the inclusion of smart beta in the global allocation, which supports additional capital growth while maintaining traditional risk tolerances.

“In other words, our risk-based portfolios are not your traditional 60/40, or 70/30 allocation – they are skewed towards growth while maintaining the same level of risk as traditional risk profile portfolios.

“In addition, we believe the transparent and open architecture nature of our models, will further support advisers to achieve the desirable outcomes for their clients.

“An open architecture investment structure means that ETFs from a range of providers have been considered to ensure portfolio investment selection is not limited by sector, asset class or product issuer.”

Netwealth is a specialist investment and super platform for financial advisers and wealth professionals designed to help manage their clients’ investment and superannuation portfolios..

Netwealth is used by more than 3,500 financial advisers, with more than $84.7 billion in funds under administration.^[3]

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Notes:
[1] SPDR ETFs / Investment Trends 2024 Managed Accounts Report, March 2024.
[2] Institute of Managed Account Professionals (IMAP) and Milliman, as at 31 December 2023
[3] Netwealth, as at 31 March 2024.

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Kathleen Gallagher

While the investment community has not stopped arguing the age-old active versus passive conundrum, we believe there is a simple solution to bridge the gap.

Smart beta exchange traded funds (ETFs) combine the low cost and discipline of passive management with active management’s potential for outperformance and thus are able to maximise risk-adjusted returns more efficiently.

Over the year to August 2023, $807 million has flowed into these strategies and trends show that this is only going to keep growing.

Despite the increasing interest, many advisers consider smart beta as a catchall for a variety of strategies and overlook the fact that the approaches within the category are differentiated and nuanced.

Factor investing at one stage was primarily the domain of active managers who used algorithms to analyse massive amounts of security data such as PE ratios, gearing levels, and yield to develop factor strategies.

Most smart beta approaches are focused on factors that drive risk and return. These factors include:

• Value – investing in listed companies exhibiting characteristics indicating it is undervalued relative to their fundamentals. These companies have the potential to appreciate in value when the market recognises its true value.
• Quality – investing in companies that are expected to do better in the long term versus other companies as they have delivered consistent levels of profitability, stable earnings, and lower debt-to-equity ratios.
• Minimum volatility – selecting companies exhibiting lower variability in returns compared to the broader market. The objective here is to reduce or manage the overall risk of a portfolio.

Single versus multi-factor

While there is long-term outperformance of these three factors, as documented by academic research, over the short-term the performance of single factors can be cyclical.

It is also difficult to time individual factors correctly as they can experience periods of underperformance relative to market cap weighted indices.

Given the uncorrelated performance of these three factors, combining them in one multi-factor, or core-oriented, strategy has several potential benefits.

Multi-factor approaches allow investors to diversify across factors and improve consistency in performance. This can help advisers navigate adverse markets conditions better.

The implementation of a diversified multi-factor exposure can therefore be used as a complement or a replacement for both active and passive core allocations.

For example, a smart beta ETF that combines value, quality and minimum volatility factors can provide an adviser with a cost-effective solution that creates a low-volatility strategy with an equal focus on high-quality and attractively valued firms.

This offers a potential for higher risk adjusted returns, typically at a lower cost relative to active strategies.

The bottom line

Smart beta indexing in effect combines the low cost and discipline of passive management with active management’s potential for outperformance.

The combination of attractive passive and active features through smart beta creates an opportunity for investors to rethink how they allocate within the core of their portfolios.

Additionally, having multiple factors in a single vehicle can reduce the amount of rebalancing for investors.

By Kathleen Gallagher, Head of SPDR ETFs Australia and Head of Model Portfolios EMEA & APAC

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Important Disclosure: Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441). You should seek professional advice and consider the product disclosure statement and target market determination, available at www.ssga.com/au, before deciding whether to acquire or continue to hold units in an ETF.  This material is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. This material should not be considered a solicitation to buy or sell a security. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

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Kathleen Gallagher has been appointed as head of SPDR ETFs Australia, in addition to her current role as head of ETF Model Portfolios Asia Pacific and EMEA, Marie Tsang has joined as a SPDR fixed income strategist for Asia Pacific, Jean Gan has joined as a SPDR fixed income sales specialist for Singapore, Hong Kong and Australia, and Robin Tsui has expanded his role to Asia Pacific gold strategist and gold sales specialist for Hong Kong.

Gallagher began her expanded role earlier this month in Sydney, while the roles of Tsang, Gan and Tsui are effective today and are based in Sydney, Singapore and Hong Kong respectively. All four report to Meaghan Victor, head of SPDR ETFs Asia Pacific Distribution at State Street Global Advisors, who is based in Sydney.

“Our SPDR ETFs business in Asia Pacific is one of State Street Global Advisors’ priorities and we are delighted to continue to invest in more top talent and resources and demonstrate our commitment to the region,” said Victor. “Kathleen and Robin’s expanded roles, alongside the two newly created roles of SPDR fixed income strategist and SPDR fixed income sales specialist, reflect our commitment to meeting the increasing demand from our clients and strengthening our capabilities in the fixed income market in the region.”

Relocating from the UK to Sydney, Gallagher was most recently the head of ETF Model Portfolios EMEA and Asia Pacific at SPDR ETFs of State Street Global Advisors. In her expanded role, Gallagher will lead, manage and develop the SPDR ETFs business in Australia as well as the ETF Model Portfolio business in Asia Pacific and EMEA across all channels, including asset owners, asset managers and financial intermediaries.

“The Australian ETF market has grown five-fold in the last five years to hit AUD 122.78 billion^[1], with even conservative estimates putting it on track to double again by 2024^[2], added Gallagher. “We are committed to strengthening our relationships with clients and continuing to grow our SPDR ETFs business in Australia, and indeed the entire Asia Pacific, and leveraging our local knowhow and global capabilities to provide investors with a comprehensive suite of investment solutions that meet their evolving needs.”

The two fixed income appointments are both newly created roles. Tsang joins State Street Global Advisors from BlackRock, where she was most recently the senior investment strategist for BlackRock Portfolio Analysis and Solutions. In her new role, Tsang will be responsible for State Street Global Advisors’ fixed income ETFs advising Asia Pacific clients how to best position and employ them in investor portfolios, promoting the strategic growth of SPDR’s fixed income products by working together with the SPDR distribution team.

Gan joins State Street Global Advisors from MUFG Securities, where she was most recently the director for institutional investor sales. Prior to that, Gan held various fixed income, derivatives and structured products sales roles at JPMorgan, Societe Generale, Citibank and UBS. Taking on the new role, Gan will be responsible for developing strategies to drive sales of the global fixed income SPDR ETFs, focusing on institutional asset owners and managers in Singapore, Hong Kong and Australia.

“The addition of these fixed income roles will champion the strategic growth of SPDR’s fixed income products and strategies in the region,” said Victor. “With declining US Treasury yields, the yield pickup of Asian bonds has become very attractive to investors. With their extensive experience and knowledge in the industry, Kathleen, Marie, Jean and Robin are uniquely positioned to build on the continued success of the SPDR ETFs business in the region, and to achieve SPDR fixed income net new assets and revenue growth in Asia Pacific in particular.”

Before taking the expanded role, Tsui was Asia Pacific gold strategist. Prior to joining State Street Global Advisors in 2016, Tsui was investment product and research manager at the World Gold Council. In his new role, Tsui will lead the sales strategies for SPDR Gold ETFs in Hong Kong, in addition to his gold strategist role which focuses on gold investment strategy and research.

Over the past 40 years, State Street Global Advisors has built a universe of active and index strategies across asset classes to help our clients, and those who rely on them, achieve their investment goals through a rigorous, research-driven investment process spanning both indexing and active disciplines. State Street Global Advisors is the creator of the world’s first ETFs^[3] and an indexing pioneer. In Asia Pacific, State Street Global Advisors manages ETFs listed in Australia, Hong Kong, Singapore and Japan.

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[1] ASX Investment Products monthly update, August 2021.
[2] Source: ASX, State Street Global Advisors as of 30 June 2021. The forecast growth is an estimate based on a CAGR of Australian ETP growth maintaining 25%p.a. over the period forecast. This information is included for illustrative purposes only. There is no guarantee that the estimates will be achieved.
[3] ETFs managed by State Street Global Advisors have the oldest inception dates within the US, Hong Kong, Australia, and Singapore. State Street Global Advisors launched the first ETF in the US on January 22, 1993; launched the first ETF in Hong Kong on November 11, 1999; launched the first ETF in Australia on August 24, 2001; and launched the first ETF in Singapore on April 11, 2002.

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