Separately Managed Accounts

[horsetrader]

Hello everyone,

I'm considering investing in a SMA because:

1. I like the concept of owning the underlying stock, and
2. Minimising transactional costs using aggregation and netting with other SMA accounts.

The fees for the SMA I am considering seem acceptable at about 1.6%, however, I am unconvinced about the performance fee because it is calculated monthly on a basis of 10% outperformance of a benchmark index. Whilst losses are carried forward it seems likely that a performance fee will be charged during the good months wheras over say a 12 month period there may be no outperformance of the benchmark at all.

Has anyone have either good or bad experiences with SMA's?

Regards,
Horsetrader.

 

[Beej]

Hello everyone,

I'm considering investing in a SMA because:

1. I like the concept of owning the underlying stock, and
2. Minimising transactional costs using aggregation and netting with other SMA accounts.

The fees for the SMA I am considering seem acceptable at about 1.6%, however, I am unconvinced about the performance fee because it is calculated monthly on a basis of 10% outperformance of a benchmark index. Whilst losses are carried forward it seems likely that a performance fee will be charged during the good months wheras over say a 12 month period there may be no outperformance of the benchmark at all.

Has anyone have either good or bad experiences with SMA's?

Regards,
Horsetrader.

I like them, if you want a hands-off approach to a diversified portfolio, but don't want the dis-advantages of unit trust based managed funds. Other SMA advantages that you have not listed are:

* Can be managed to minimise your capital gains tax events etc from an individual perspective (ie most "expensive" parcels always sold first etc). Choose a provider that says they do this.

* Consolidated taxation reporting for your tax return (ie you don't need to track all the detail or an accountant as you should get an audited statement each year ready for your tax return).

* 100% of dividends are cost effectively re-invested in a balanced manner across your portfolio, with minimal brokerage cost

* Ability to transfer stock out of SMA into your own private account if required, meaning yuo can exit without triggering CGT events and take over management yourself if you like or sell assets at a future time when taxation rate might be lower.

* Ability to participate in and thus benefit from institutional capital raising/offers etc like a managed fund can, but effectively benefit as a retail investor due to the direct share ownership model of an SMA

As for performance fee's, not all SMA providers charge this. The manager I use charges between 1% and about 1.6%pa depending on the portfolio mandate/s you select, but there are NO performance fee's, yet they have a wide selection of underlying, mandates, run by several well respected fund managers (many of which are from other organisations, ie you are not locked into in house fund managers only). Personally I don't like performance fees and prefer to use an SMA provider that does not charge them.

Cheers,

Beej

 

[horsetrader]

I like them, if you want a hands-off approach to a diversified portfolio, but don't want the dis-advantages of unit trust based managed funds. Other SMA advantages that you have not listed are:

* Can be managed to minimise your capital gains tax events etc from an individual perspective (ie most "expensive" parcels always sold first etc). Choose a provider that says they do this.

* Consolidated taxation reporting for your tax return (ie you don't need to track all the detail or an accountant as you should get an audited statement each year ready for your tax return).

* 100% of dividends are cost effectively re-invested in a balanced manner across your portfolio, with minimal brokerage cost

* Ability to transfer stock out of SMA into your own private account if required, meaning yuo can exit without triggering CGT events and take over management yourself if you like or sell assets at a future time when taxation rate might be lower.

* Ability to participate in and thus benefit from institutional capital raising/offers etc like a managed fund can, but effectively benefit as a retail investor due to the direct share ownership model of an SMA

As for performance fee's, not all SMA providers charge this. The manager I use charges between 1% and about 1.6%pa depending on the portfolio mandate/s you select, but there are NO performance fee's, yet they have a wide selection of underlying, mandates, run by several well respected fund managers (many of which are from other organisations, ie you are not locked into in house fund managers only). Personally I don't like performance fees and prefer to use an SMA provider that does not charge them.

Cheers,

Beej

Thanks Beej

Good advice about ensuring CGT imopacts can be taken into account by selling the expensive parcels first etc. I think I will go ahead with with the SMA; the one i'm looking at is Fat Prophets.

Regards
Horsetrader

 

[Beej]

Thanks Beej

Good advice about ensuring CGT impacts can be taken into account by selling the expensive parcels first etc. I think I will go ahead with with the SMA; the one i'm looking at is Fat Prophets.

Regards
Horsetrader

Fair enough - make sure the performance fee reference index is a relevant accumulation index, not just a price index (for example, ASX-200 Accumulation index not just ASX-200). For what it's worth, I have an SMA with One Vue/Share Invest (used to be Direct Portfolio).

Cheers,

Beej