Separately Managed Accounts (SMAs) are an increasingly popular investment vehicle for individuals seeking personalized and diversified portfolio management. Unlike mutual funds or exchange-traded funds (ETFs), SMAs offer a higher degree of customization, allowing investors to have direct ownership of the securities within their portfolio. This direct ownership provides greater transparency and control, making SMAs an attractive option for those who want to align their investments with their financial goals and personal values.
SMAs are often compared to traditional investment funds, such as mutual funds. However, the key difference lies in the level of customization and ownership. In a mutual fund, investors pool their money together to invest in a diversified portfolio managed by a professional. The returns and risks are shared among all investors, and each investor owns a share of the fund, not the individual securities within it. In contrast, an SMA provides you with direct ownership of the underlying assets. This means you can see exactly where your money is invested and have the ability to tailor the portfolio to meet specific objectives, whether that’s avoiding certain industries, focusing on specific sectors, or adhering to environmental, social, and governance (ESG) criteria.
The rise of ESG investing has been one of the most significant trends in recent years, and SMAs are well-suited to cater to this demand. ESG funds focus on companies and industries that meet certain environmental, social, and governance standards. With an SMA, investors can work with their portfolio manager to create a customized ESG portfolio that aligns with their values. This personalized approach allows for more granular control over the types of investments included, such as excluding fossil fuels or focusing on renewable energy companies. As awareness of the impact of investment choices on the planet grows, SMAs provide a powerful tool for investors looking to make a positive difference while still seeking competitive financial returns.
Investing in alternative investments through Separately Managed Accounts (SMAs) offers a unique opportunity to diversify your portfolio beyond traditional stocks and bonds. Alternative investments can include assets such as real estate, private equity, commodities, and hedge funds, which often have low correlation with the broader market. This low correlation can provide a hedge against market volatility, reducing overall portfolio risk. According to a study by Preqin, alternative assets under management were projected to reach $14 trillion by 2023, underscoring the growing interest and confidence in these asset classes. By incorporating alternatives into an SMA, investors can tailor their portfolios to include a mix of assets that align with their risk tolerance and investment objectives.
One of the key advantages of using SMAs for alternative investments is the ability to customize your exposure to these assets. Unlike mutual funds or ETFs, where investors share in the same pool of assets, an SMA allows for direct ownership of the underlying investments. This means you can work closely with your portfolio manager to select specific alternative investments that meet your criteria. For example, you might choose to invest in real estate properties that align with your long-term goals or allocate a portion of your portfolio to hedge funds with a proven track record in volatile markets. This level of personalization is particularly valuable for high-net-worth individuals looking to craft a bespoke investment strategy.
Furthermore, SMAs offer greater transparency and control over your alternative investments. Since you own the assets directly, you have full visibility into the performance and composition of your portfolio. This transparency is crucial when investing in alternatives, as these assets can be more complex and less liquid than traditional investments. According to a survey by EY, 81% of investors cited transparency as a key factor when selecting alternative investment managers. With an SMA, you can monitor your alternative investments closely and make adjustments as needed, ensuring that your portfolio remains aligned with your financial goals and market conditions.
Investing directly in shares through a Separately Managed Account (SMA) offers the distinct advantage of owning individual stocks, as opposed to holding a share in a pooled fund like a mutual fund or exchange-traded fund (ETF). This direct ownership allows investors to have a more hands-on approach to their investments, working closely with their portfolio manager to select stocks that align with their unique financial objectives. Whether the focus is on growth stocks that offer the potential for significant capital appreciation or value stocks that are currently undervalued by the market, the investor has the flexibility to craft a portfolio that matches their personal investment strategy. Additionally, by targeting specific industries or sectors, investors can leverage their knowledge and insights to gain exposure to areas they believe will outperform the broader market.
One of the key benefits of owning individual shares in an SMA is the ability to respond proactively to changing market conditions. Markets are inherently volatile, and certain stocks or sectors may underperform due to a variety of factors such as economic downturns, industry-specific challenges, or shifts in consumer behaviour. With an SMA, investors have the agility to reallocate their investments as needed, either by reducing exposure to underperforming stocks or by capitalizing on emerging opportunities in other areas. This level of control is particularly important for those who are looking to not only preserve capital but also achieve long-term growth that outpaces inflation. Beating inflation is a critical goal for any investor, as it ensures that the real value of their investments increases over time, preserving purchasing power and achieving financial objectives.
Transparency is another significant advantage of investing in shares through an SMA. Unlike pooled investment vehicles, where the individual investor may not know exactly which stocks or assets they own, SMAs provide a clear and detailed view of the portfolio. This transparency allows investors to see precisely what they hold, making it easier to track performance and make informed decisions about future adjustments. For investors who wish to be closely involved in the management of their assets, this level of visibility is invaluable. It not only provides peace of mind but also enables a more collaborative relationship with the portfolio manager, ensuring that the investment strategy remains aligned with the investor’s goals and risk tolerance. Furthermore, as shares are often seen as long-term investments, having this level of insight and control can help investors stay committed to their strategy through market fluctuations, ultimately contributing to the achievement of their long-term financial goals.
For income-focused investors, SMAs can be tailored to maximize dividend yield. Dividend-paying stocks can provide a steady income stream, which is especially appealing in a low-interest-rate environment. In an SMA, your portfolio manager can select stocks that not only have a strong history of paying dividends but also show potential for dividend growth. Additionally, since you directly own the shares in an SMA, you benefit from the dividends without the dilution that can occur in a mutual fund. This focus on dividends can be an effective strategy for those looking to generate income while also benefiting from potential capital appreciation.
Algorithmic trading is the use of computers, mathematical models, and telecommunications networks to automate the process of buying and selling financial securities. This technology-driven approach allows for more efficient trading by minimizing human intervention, reducing errors, and increasing the volume of transactions
In recent years, algorithmic trading has gained traction as a tool for enhancing portfolio performance. SMAs can incorporate algorithmic strategies to execute trades based on predefined criteria, such as price, volume, or market conditions. This can help in capturing short-term opportunities or mitigating risks by automating the trading process. Algorithmic trading in SMAs allows for a more disciplined approach to investing, reducing the emotional biases that often lead to suboptimal decisions. The integration of technology with human oversight in an SMA creates a powerful combination, offering the potential for improved returns and more efficient portfolio management.
Separately Managed Accounts offer a unique blend of customization, transparency, and control that appeals to a wide range of investors. Whether you are interested in discretionary investment management, ESG funds, alternative investments, or dividend-focused strategies, SMAs provide the flexibility to tailor your portfolio to your specific needs and goals. The ability to directly own individual assets, coupled with the expertise of a professional portfolio manager, makes SMAs a compelling option for those seeking a personalized investment experience. As markets evolve and investor preferences shift, the versatility of SMAs ensures they will continue to play a vital role in the world of wealth management.
At Stalwart Holdings, we specialize in creating tailored SMAs that align with your financial goals by leveraging the proven strategies of our flagship balanced fund. By replicating the investment portfolio of our balanced fund, we provide clients with a robust foundation built on a diversified mix of assets designed for growth and stability. Additionally, we understand that each client has unique needs and risk tolerance, which is why we adjust the composition of your SMA based on a thorough risk profiling conducted during onboarding. This personalized approach ensures that your portfolio is optimally structured to meet your specific objectives while managing risk effectively.