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Investor Education > Separately Managed Accounts

WHAT IS A SEPARATELY MANAGED ACCOUNT?

A separately managed account (SMA) is a customised share portfolio where the assets are owned by individual investors. An investment is allocated across one or more available investment models, which will determine the portfolio allocation between shares. These investment models have been provided by investment specialists and vary in focus in much the same way that managed funds vary in their risk and return objectives.

One way to look at separately managed accounts is as an alternative to managed funds. Investors are able to utilise the collective knowledge and intellectual property of investment professionals and experienced fund managers and have greater transparency and flexibility by investing in shares. SMAs are non-unitised managed funds.

Main advantages of a separately managed account
A separately managed account is professionally managed like an individual portfolio with many key advantages:

  • The securities in the account are visible and portable just as they would be if they had been purchased directly
  • The underlying securities are owned, not units in a fund.
  • As a result, the investor can manage the tax position.
  • SMAs offer one or more model portfolios to choose from so investors are able to create a customised and diversified portfolio of shares.
  • Consolidated reporting is provided online with complete and concise reports available at anytime. All the paperwork and administration is taken care of by the SMA provider, reducing the administrative burden on investors.
  • Low minimum investment requirements and low brokerage costs allow SMA investors can more effectively diversify their portfolio and dollar cost average into direct shares.

What is an investment model (model portfolio)?
An SMA will offer a number of model portfolios for investors to select from. A a separately managed account portfolio is constructed using one or a number of investment models managed by professional investment managers. Models will differ in the levels of risk and return and each model will have a different investment emphasis (such as ASX top 20, Australian shares, property securities etc). This is how separately managed accounts ensure that the diverse investment needs of all account holders are met. The SMA provider will then purchase the securities so that they reflect the model(s) chosen, the fund manager of the model will regularly manage the models to meet the model's investment objective. The key difference between an investment and a managed fund is that the SMA holder retains beneficial ownership of the securities. The underlying securities are visible to the investor and the investor retains the tax advantages of owning direct shares.

Investing in a separately managed account
Until recently, separately managed accounts (SMA) have been for high net worth individuals with access to minimum investments of $500,000 or more. Changes in technology have made SMA’s more affordable for the average investor, with the minimum investment for an SMA steadily declining since SMAs were first introduced in the early 1990s. You can invest in a separately managed account for as little as $5,000 across a single or multiple models within the SMA.

 

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