When advisors outsource their investment management, the strategists they employ should post healthy performance numbers. More important is that they can clearly articulate the strategy that yields that performance and repeat it, regardless of how the overall market performs.
This will be the 11th year that Investment Advisor has partnered with Envestnet | PMC to name the Separately Managed Account Managers of the Year awards.
The process begins with a look at SMA managers in U.S. equity large-cap; U.S. equity small-, mid- and SMID-cap; fixed income; global or international equity; and a specialty category in which candidates differ each year, much as the market’s top and bottom performers differ from year to year.
This year we are adding two new categories, reflecting trends in the SMA industry, which themselves reflect trends among advisors and their end clients. The Impact award winner recognizes a portfolio manager who has achieved sustained success in impact investing—the notion that an investor’s investment portfolio should reflect their personal beliefs and preferences, whether it concerns corporate governance, sustainable investing or other social or religious beliefs.
Since model portfolios are attracting so much attention from advisors and their clients as opposed to traditional SMAs where the manager builds a portfolio for each investor one security at a time, we also thought it appropriate to name a Strategist of the Year (for more on how the winners are chosen, see “How We Picked Them”).
Finally, from among the individual winners, the awards committee chooses an overall SMA Manager of the Year, who can be considered a first among equals.
Why honor managers in this space? First, there’s the size of the overall market and the growing involvement of non-wirehouse advisors in the space. Tim Clift, chief investment strategist of Envestnet | PMC, says that by Cerulli’s reckoning, as of year-end 2014 there was $838 billion invested in some form of SMA, or about 20% of the $4 trillion invested in managed money. While Clift notes that there’s been a decline in overall SMA assets since 2008, when SMAs accounted for 35% of all managed money, over that same time there’s been a big shift toward model SMAs. 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 the growth of model SMAs delivered through a unified managed account (UMA), which now accounts for 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.
Clift says that of the many attractions clients and advisors have to SMAs, “probably the No. 1 is tax efficiency.” That’s because the client owns individually the underlying shares or securities, “so it’s much more efficient to conduct tax loss harvesting,” he says. “Second would be customization,” so an advisor or manager can “work 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.
The finalists (alphabetically) for the 2015 SMA Managers of the Year:
U.S. Equity Large-Cap (two awards)
Alley Company – Dividend Portfolio
Dana Investment Advisors – Large-Cap Equity
Golden Capital Management – Large-Cap Core
Raub Brock Capital Management – Dividend Growth
U.S. Equity Small- or Mid-Cap (two awards)
Chartwell Investment Partners – Small-Cap Value
Congress Asset Management – Mid-Cap Growth
Kayne Anderson Rudnick – Small-Cap Core