Michael Gates: Why More Advisors Are Migrating to Model Portfolios

In this episode of The Long View, host Ben Johnson interviews Michael Gates, Managing Director and Head of Model Portfolio Solutions at BlackRock, about the growing adoption of model portfolios among U.S. financial advisors. Gates explains that model portfolios are actively managed, multi-asset strategies with strategic allocations and tactical adjustments, using broad ETFs and active funds across a range of risk profiles—from all-equity to all-bond. He highlights the competitive advantage advisors gain through model-based practices, including time savings, improved performance, and access to advanced tools like tax-loss harvesting, options overlays, and separately managed accounts. Over the past decade, BlackRock’s model portfolios have grown to over $220 billion in assets, with a total U.S. market size of $4.2 trillion and a potential addressable market of $11.5 trillion. Gates attributes the shift to advisors moving away from individual security selection due to the scalability, efficiency, and performance benefits of models. Gates outlines the core principles behind BlackRock’s model construction: a whole-portfolio mindset centered on diversification, risk budgeting, and the use of Aladdin for granular risk analysis. His team leverages specialized expertise across equities, fixed income, and alternatives, with a disciplined manager selection process. Recent portfolio repositioning reflects a risk-on stance with refinements—reducing exposure to large-cap U.S. stocks, cutting precious metals due to uncertain demand, and underweighting credit risk amid tight spreads. These moves are guided by a scenario-based risk framework, preparing for potential downturns while maintaining equity exposure. The discussion also covers AI’s impact on productivity and employment, with Gates arguing that AI-driven efficiency could sustain job growth if overall economic expansion is strong. BlackRock’s thematic investments in AI and defense are implemented via active managers with strong performance, emphasizing careful sizing, timing, and risk diversification. Looking ahead, Gates predicts increased use of SMAs, options overlays, and tax-efficient strategies in models over the next 14 years, driven by cost efficiency and client value. Key takeaways include: 1) Model portfolios offer advisors a scalable, high-performance alternative to individual security selection; 2) Risk management and tactical refinements—like reducing credit and gold exposure—are critical during periods of tight spreads and uncertain demand; 3) Thematic investing, when done with active managers and proper risk controls, can add meaningful alpha; 4) AI’s impact on productivity may boost economic growth without necessarily reducing total employment; 5) The future of model portfolios lies in deeper integration of tax efficiency, SMAs, and options overlays.