ETFs are still barely used in UK managed portfolios despite strong interest from advisers and pressure from issuers, according to Morningstar’s UK Managed Portfolio Landscape 2025 report.
The study shows open-ended funds continue to dominate underlying holdings at around 92%, with ETFs and closed-end funds making up only a small fraction of model portfolio allocations.
This is despite years of industry debate over whether ETFs could help advisers cut costs and improve transparency under Consumer Duty.
Morningstar says the limited representation of ETFs reflects a combination of platform constraints, operational challenges and commercial incentives that favour OEIC-based models.
Tom Mills, principal for multi-asset strategies at Morningstar, said: “The UK managed portfolio landscape has reached a point of maturity, with providers focusing on refining cost efficiencies and adapting to evolving adviser preferences.
“The shift towards passive and blended strategies highlights the growing emphasis on affordability and scalability, while the steady decline in active holdings underscores the competitive pressure to deliver value in a cost-conscious market.”
Platform limitations are seen as the biggest barrier to broader ETF adoption. Many adviser platforms still lack fractional ETF trading, efficient bulk rebalancing or the ability to automate trades at scale, making it difficult for DFMs to run ETF-heavy portfolios without taking on additional operational risk.
DFMs say ETFs can also complicate execution, with trade batching, settlement timing and bid–ask spreads adding friction that does not exist with daily-priced OEICs.
Several providers told Morningstar they prefer the stability and simplicity of NAV-based fund structures for risk profiling and client reporting.
ETF issuers argue the slow uptake is driven by inertia. They say advisers are missing out on cost savings of 20–40 basis points by sticking to OEIC-based models, raising questions under Consumer Duty around whether higher-cost structures can still justify their place.
Some DFMs also point to VAT treatment differences between OEICs and ETFs, arguing that the long-established OEIC framework remains easier to operationalise across platforms.
The report suggests that although the model portfolio market is now mature, genuine structural change will depend on platforms upgrading their ETF infrastructure and DFMs revisiting long-standing operational assumptions.