While mutual funds have been the choice investment vehicles for many individual investors, the separately managed accounts or SMAs are starting to get traction in the market. So what make SMAs a different investment vehicle out there? For starters, SMAs are often positioned as an alternative for traditional mutual funds, and geared towards to the more ‘moneyed individuals and investors’. But aside from the cost of investment, there are other notable differences between mutual funds and separately managed accounts. There are two basic differences that an investor can realize when comparing these two investing vehicles- ownership and personalization.
Ownership– Both mutual funds and SMAs require an investment in a pool, and a finance or investment manager takes direct management of the fund’s growth and direction. The difference now lies in who and how much your share is in the collective fun. In traditional mutual funds, the money is fused with the cash invested by other investors. In mutual funds, it’s like buying into a share of the pie- the higher your investment, the higher your share. In SMAs, you directly own the securities, as represented by an assigned financial manager. Under the usual arrangement, the money you invest in SMAs will be placed in physical shares of identified stocks and other preferred investments, directly proportional to the cash investment. If you see the need to share the holding of a certain stock, it’s possible with SMA, which isn’t possible in a mutual fund.
Personalize based on risk profile– The ability to customize or select what stocks to maintain and sell is another stand-out difference. In mutual funds, you can select a mutual fund based on risk or growth profile, but you share common ownership on these stocks. But in SMAs, your portfolio is yours and unique in composition. You can work with the manager to take out some stocks in portfolio or add emerging stocks based on your market reading.
Separately managed accounts or SMAs serves as a creative and empowering investment alternative. These investment vehicles may be new and requires higher initial investments, but it provides a different route that may be aligned with your financial capabilities and risk profile.