What is a model portfolio?

“In their simplest form, they are a series of predefined asset allocation pie charts in which a recommended mix of different asset classes are proposed based on a client’s risk tolerance,” according to Broadridge.  

Well, Cathie Wood’s Ark Invest has today launched its own "model portfolio" that seems to fit precisely none of this criteria. 

Her firm has partnered with trading company eToro to produce a portfolio that coincidentally comprises seven underlying Ark ETF funds, all of which are equity-based products. As far as we can tell, there is also only one portfolio, so if your risk rating doesn't match it then good luck.

With a heavy focus on AI, healthcare and sustainability, the single asset class strategy has not exactly embraced the idea of diversification – with all seven positions in the underlying funds exceeding 10 per cent in size. 

As our readers are all too aware, UCITS rules dictate that for regulated MPS products, no single asset can represent more than 10 per cent of the fund's assets and holdings of more than 5 per cent cannot in aggregate exceed 40 per cent of the fund's assets.

It’s probably a good thing, then, that Ark is bypassing the institutional and intermediary market and heading straight for the retail investor instead, who has always been their core following. 

Ark unveiled a set of three actively-managed ETFs to European investors earlier this year, but demand among fund selectors has been particularly soft. 

Asset Allocator reported that in the five months since launch, the three funds combined have gathered just £15mn in assets under management. 

This brings up the wider issue as to whether there’s a sufficient desire for active ETFs in Europe, which you can read more about here.