Mutual Funds

PATRICIA HEALY: The rise of separately managed accounts: A 2021 update

Patricia M. Healy

Patricia Healy

Cumberland has utilized separately managed accounts (SMAs) to execute its fixed-income strategy since the company’s inception in 1973, long before SMAs were popularized in the early 2000s.

The reasons for managing money in this fashion are the same today as they were then:

• Transparency (you know what you own).

• Flexibility to make strategic changes.

• Ability to manage transaction costs and best execution.

• Active management.

SMAs offer individually catered portfolio management to address clients’ objectives, including tax management, income production, state-specific needs, cash flow-specific needs, and ability to institute investment restrictions. SMAs differ from pooled vehicles like mutual funds in that each portfolio is unique to a single account.

Federal Reserve funds flow data

The advantages of SMAs have led to their increased use by investors. According to Citi Research, SMA municipal fixed-income assets, both taxable and tax-exempt, have grown from $100 billion in 2008 to $776 billion at the end of Q2, 2021. The SMA details are not separately reported by the Federal Reserve, so Citi Research uses a survey of its customers and Federal Reserve flow of funds data to arrive at an estimate. The rate of growth of SMA municipal and mutual fund assets has grown while direct retail has declined. SMA growth had been higher than mutual fund growth, but more recently mutual fund growth has been greater.

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