Capital Group, a prominent player among the world’s largest active investment managers, has officially launched eight new all-active exchange traded fund (ETF) model portfolios, consolidifying its footprint within the burgeoning active ETF model portfolio market. The launch on March 12, 2025, introduces portfolios like the Global Growth Model and Conservative Income Model, catering to the growing demand from financial professionals seeking models composed entirely of active ETFs.
The eight new models comprise Capital Group’s 22 active ETFs, which boast over $53 billion in assets under management (AUM). This remarkable figure reflects the firm's strength and credibility; it also highlights its seasoned standing as the fastest organically grown suite of active ETFs available today. The portfolios are crafted to employ around eight to ten ETFs apiece, depending on model specifications, facilitating effective portfolio management for more than 35,000 financial advisors who currently utilize Capital's offerings.
Scott Davis, the head of ETFs at Capital Group, stated, “Our models stand out by being pretty well diversified,” emphasizing the strategic allocation within these portfolios. The firm’s approach mirrors the broader industry trend favoring models built around actively managed funds, setting up to challenge the mostly passive strategies traditionally dominant on the market.
Capital Group’s move is not entirely novel, as other managers, including Dimensional Fund Advisors, have laid similar groundwork; yet it reflects the persistent industry shift toward active management. According to Bryan Armour, the director of passive strategies research at Morningstar, “This is the big trend in models, and we’re going to see much more active ETF models going forward.”
With model portfolios growing increasingly influential among U.S. financial advisers, research conducted by State Street Global Advisors revealed these professionals allocate approximately 39% of the assets they manage to these pre-constructed mixes. Just three years earlier, this figure stood at 32%. Such statistics highlight the burgeoning importance of models, especially as active ETFs claim an all-time high of 28% net inflows to ETFs last year, enhancing their market share to 8.1%.
The new all-active models from Capital Group, set against its backdrop of $62 billion managed across existing models, will encompass various risk levels and investment goals. The offerings range from high-growth portfolios aimed at aggressive investors to conservative ones appealing to risk-averse clientele, aiming to facilitate deliberate financial planning based on client needs. Holly Framsted, head of the product group at Capital, noted, “The idea of launching all-active ETF models was the number one question we have received since bringing ETFs to the market.”
This expansion of Capital’s portfolio reflects broader shifts currently occurring within the ecosystem for financial advice. “Financial advisers are getting paid by their clients for things like financial planning and whole-life advice, in addition to investment management. To make space for this, we increasingly see them outsourcing their investment management to managers like Capital,” Framsted highlighted.
The ability to utilize ETFs over traditional mutual funds is particularly appealing, as they tend to offer lower fees and enhanced tax efficiency. A salient aspect of ETFs is their design, which permits tax-advantaged strategies by mitigating capital gains tax burdens faced by mutual funds. “ETFs have grown significantly, especially for taxable accounts,” Framsted added, reinforcing the strategic move Capital Group is making.
Given the projected growth within the U.S. model portfolio market, estimated at around $2 trillion, Capital Group aims to capitalize on the dynamism presented here. Though broker-dealers like Edward Jones Investments and Merrill Lynch continue to command dominant market shares, the influence of asset managers and third-party providers has been increasing as more advisers express preference for these diversified models.
Matt Apkarian of Cerulli Associates noted, “Advisers increasingly have preferences for asset management models. There are more models available, and advisers have manager preferences.” This sentiment aligns with findings from Cerulli, which indicated half of U.S. asset managers not yet offering ETF models plan to do so soon, predominantly favoring active strategies.
Capital Group’s commitment to this trend reflects not only its responsiveness to market demands but also its readiness to adapt and innovate within the fast-evolving financial advisory ecosystem. Amidst fluctuations and shifts, it stands as evidence of the growing prominence of actively managed ETFs and model portfolios, ensuring investors have the resources and solutions available to align their strategies with their financial goals.
Capital Group's ability to pivot and cater to such market changes foreshadows broader acceptance and integration of active ETFs across more client foundations, making them central to future investment discussions. The firm is already considering additional ETF launches later this year, demonstrating its commitment to staying at the forefront of investment management solutions.