Active ETFs: The Top Choice for Model Portfolio Providers

Active ETFs are the top choice for model portfolio providers, according to a survey of 30 asset managers in Morningstar's 2025 Model Portfolio Landscape Report. Active bond ETFs are expected to be added by all firms, and active equity ETFs by all but one firm. The use of active ETFs in model portfolios is expected to increase, with 44% of model portfolios featuring at least one active ETF as of March 31, 2025. Active ETFs offer a cost-effective way to add active management at the security level while keeping overall expenses down.

Title: Active ETFs Gain Traction in Model Portfolios

Active ETFs are emerging as the top choice for model portfolio providers, according to a recent survey conducted by Morningstar. The 2025 Model Portfolio Landscape Report reveals that active bond ETFs will be added by all firms surveyed, with only one firm not planning to incorporate active equity ETFs. This trend is expected to continue, with 44% of model portfolios already featuring at least one active ETF as of March 31, 2025 [1].

The increasing adoption of active ETFs in model portfolios can be attributed to several factors. Active ETFs offer a cost-effective way to introduce active management at the security level, thereby keeping overall expenses down compared to traditional actively managed mutual funds. Additionally, the flexibility they provide allows portfolio managers to differentiate their models, especially as many early models relied heavily on index-based options [2].

The survey also highlights that model providers are planning to add separate accounts to their lineups in the coming years. This move aims to enhance tax efficiency and customization, making model portfolios more appealing to high-net-worth investors. Features like the ability to remove specific securities or add custom constraints can be particularly beneficial for investors with large, concentrated positions [2].

Furthermore, there is a growing interest in incorporating private market exposure into model portfolios. Semiliquid funds, such as interval funds, are becoming popular tools for accessing private markets like private equity, private credit, and real estate. These funds offer periodic liquidity, allowing investors to participate in private markets with more flexibility than traditional private drawdown vehicles [2].

Despite the surge in demand for bitcoin ETFs, few model portfolio providers expect to add them to their models in the next three years. BlackRock's model portfolio team did add its popular iShares Bitcoin Trust (IBIT) to its model portfolios with alternatives in early 2025, but only for those portfolios that include strategic allocations to alternative strategies [2].

In conclusion, active ETFs are poised to play a significant role in the future of model portfolios, offering a cost-effective and flexible way to incorporate active management. As investors and financial professionals continue to seek out innovative and efficient investment solutions, the trend towards active ETFs is likely to persist.

References:
[1] https://www.morningstar.com/topics/etfs
[2] https://www.morningstar.com/portfolios/active-etfs-are-top-choice-model-portfolio-providers