Separately Managed Accounts (SMAs)

Separately Managed Accounts (SMAs) are pooled investments with a high level of customization that allow you to invest directly into the underlying securities within the SMA.

While SMAs and Mutual Funds are similarly managed by a portfolio manager, SMAs have some differences that may provide benefits that Mutual Funds cannot.

Example:

Mutual Fund: 50% in AAPL, 50% in MSFT - investor does not own AAPL or MSFT outright. Mutual funds do not offer the benefit of customized portfolio management.

SMA: 50% in AAPL, 50% in MSFT - investor owns AAPL and MSFT outright. Additionally, the investor can make changes specific to their account.

Separately Managed Accounts also afford the investor with tax benefits. Instead of formulating taxes based on percentage of the fund owned, and capital gains and income taxes specific to the fund, an SMA offers selective realization of gains and losses.

Another benefit of SMA strategies is that the investor can view actual performance of the fund manager’s strategy over time rather than a hypothetical performance from current holdings. Strategies or allocations sometimes change, but the SMA’s history and returns do not. This helps advisors and investors both by giving a more clear understanding of what their investment will yield.

SMA strategies tend to have a higher minimum initial investment, and may not be appropriate for all investors. Investment professionals tend to recommend SMA strategies to their clients to give them a personalized approach to their portfolio, while still following a fund manager’s strategy.