Separately managed accounts are increasingly popular among retail investors who can meet certain minimums — which have been falling — and want enhanced transparency, lower fees, daily liquidity, customization and U.S. tax advantages mutual funds cannot offer.
Previously, retail SMAs were geared only toward high-net-worth investors who could afford minimums like $400,000. Through improved technology and the development of SMA models that use underlying mutual funds and ETFs to gain various market exposures, minimums have come down to as low as $25,000. This has made SMAs accessible to a broader array of investors.
By harnessing new technologies and streamlining operations, SMA sponsors can now offer multi-asset SMAs. These diversifying products are growing more attractive as some asset classes grow less correlated, and I expect them to prove popular.
Over the last decade, retail investors have poured money into market-cap weighted ETFs because of their low costs. SMAs also can provide lower costs, with the added advantage of better diversification for markets that are unlikely to continue going straight up from here.
Buying a diversified SMA from a quality asset allocator can give investors everything they want in one package for a good price, at a low minimum. They need not worry about rebalancing. Investing in an SMA means buying the securities that day, not buying into a commingled vehicle that has large embedded gains — as so many mutual funds do, after years of market runups.
As we move into the next generation of products, investors can buy SMAs that are solutions-based. They may invest, for example, in an SMA that has a target outcome, with low volatility, and mixes equities (international and domestic) with fixed income.
Investor thinking is evolving. For many years, with equity markets steadily rising and inflation persistently low, investors simply wanted to beat the benchmark. Today, many could not care less about benchmarks, or traditional style boxes, and instead want a specific return.