Honoring SMA Managers Who Shine in Rainy and Sunny Times

Rather than traditional SMAs where the portfolio manager “opens the account, then trades it, targeted at the HNW client who owns individual stocks and bonds,” Clift says, now “the managers are providing their intellectual capital to a platform.” It’s advisors, Clift points out, who “are using the platform, so they need to know the [end] customer,” and are thus “responsible for risk profiling them and making changes when necessary.”

This has resulted in model SMAs delivered often through a unified managed account (UMA), which now comprises 11% of the assets in the SMA universe, up from 4% over the last seven years, Clift says. “The UMA business is $138 billion,” he says, making it “one of the fastest growing areas” in separately managed accounts. So if model portfolios in UMAs are increasingly the wrapper for SMAs, what are the traits of SMAs that make them appealing to advisors and their clients? Is it portfolio transparency or tax efficiency or the ability to customize the portfolio to individual client’s needs and preferences.

“It’s all of the above,” says Clift, but “probably the number one is tax efficiency.” That’s because the client owns individually the underlying shares or securities in the account, “so it’s much more efficient to conduct tax loss harvesting,” he says. “Second would be that customization,” so an advisor or manager can “work the portfolio” to accommodate an existing high-basis position in the portfolio, or a client’s interest in “socially responsible investing, for example; which “ties into the Impact award” being launched this year. “There’s more interest in doing good while doing well in the markets,” Clift says, and while not wanting to stereotype, he says that kind of impact investing strategy is particularly strong among women.

So where do the assets flow in SMAs? “Municipal bonds have the most assets,” Clift says, reflecting the importance of tax-aware investing among SMA end-clients and the ability to “take advantage of residency” among state-specific muni bonds. The second most popular would be large cap strategies in general, especially among the “higher yield, higher dividend” portfolio strategies, where income is important.” But the biggest growth, Clift says, is in “all-cap, multi-discipline strategies,” where managers are less constrained by needing to hew to a benchmark, and thus “not forcing them into a box.” Here are the finalists, in alphabetical order, for the 2015 Envestnet/Investment Advisor SMA Managers of the Year:

The winners of the 11^th annual SMA Managers of the Year awards will be revealed on May 7 in a ceremony during the Envestnet Advisor Summit in Chicago. Look for onsite reporting in Investment Advisor magazine and ThinkAdvisor on the winners, a free webinar in June with two of the winning managers, and additional content in text and in video on the winners and the process.

– Check out last year’s winners: All Americans: The 2014 SMA Managers of the Year