Morningstar: Model Portfolio Providers Embrace Active ETFs

Model portfolios allow financial advisors to spend less time on portfolio management and more on creating and maintaining a strong full financial picture for their clients—and more commonly, advisors are using active exchange-traded funds to do it.

Assets in third-party model portfolios hit more than $645 billion at the end of March, a whopping 62% increase from June 2023, according to Morningstar’s latest report on the landscape of model portfolios. Meanwhile, active ETFs, which just recently outnumbered their passive counterparts, are increasingly making their way into those model portfolios.

“Most new model portfolios that have been launched so far this year have primarily featured active funds, reversing the recent trend of blended active/passive allocations,” the authors of the Morningstar report wrote.

Model Portfolio Providers Turn to Active ETFs

Morningstar asked 30 model portfolio providers what they plan to add to their offerings over the next three years, and active ETFs were at the top of the list, with active bond ETFs slightly eclipsing active equity ETFs. Plus, 44% of the models already own at least one active ETF as of the end of March, and the average allocation to those models is 33%.

“Active ETFs offer differentiation, helping model portfolio managers stand out from the largely index-based offerings that dominated the early model portfolio boom,” the report said. They’re also typically less expensive than actively managed mutual funds.

Last year, asset managers launched 500 active ETFs—a big jump from 350 in 2023. As of May, active ETFs had $165 billion of net inflows, Morningstar found. 

Bitcoin ETFs Haven’t Yet Hit Model Portfolios 

While Bitcoin ETFs have hit record after record since their market debut in January 2024, few model portfolio providers expect to add those funds to their offerings in the near term.

The authors of the report pointed out that while BlackRock’s model portfolio team added the popular iShares Bitcoin Trust (IBIT) to its model portfolios in early 2025, it was only to the model portfolios that include strategic allocations to alternative strategies. That “suggests the firm doesn’t yet see the ETF having a role in the average portfolio,” the authors of the report wrote.