I was talking to a small cap PM awhile back. I like him as a person, his team seems competent, and his returns are phenomenal year over year. I began talking business with him as I’m reallocating some assets, and he said he’d make an exception on the SMA minimum account balance.
Fees are 1% of the asset level.
I think this is a slam dunk! I have a traditional IRA account that I do little with as I can no longer contribute that I could ACAT over and let them do with as they’d like.
Anyone have experience with allowing PMs to manage a chunk of their capital?
I think too highly of myself to do this, but perhaps if I had so much money or so little time I’d consider hiring it out. The way I see is it my portfolio management is nearly as much of a driver of my wealth now as my 9-5. I don’t have an issue with spending time managing it. Returns by pros may mean revert over time (though not necessarily so). When I was in the pension manager selection game, I was always nervous when the committee was pushing for a high flyer. Often my nervousness was justified as the high flyer came crashing down the next quarter. I’d also be cautious of a guy offering to run a small SMA for 1% a year. Let’s say you throw $100k at him. He’s going to earn $1,000. He’s going to spend 5-10 hours a year on your account for that price, probably the lower end. You get what you pay for. Just be cautious.
I have an ETF account managed by a separate group. It’s a market portfolio that focuses on minimizing tax and never underperforming the market…was built by a group of engineers and is very automated in its rebalancing, reinvesting dividends, etc. I manage my own separate small cap account. Core-satellite if you will.
I have experience in this. Can’t comment much on fees other than its probably cheaper than most actively managed small cap mutual funds, so thats a plus if you want that style of management.
I wouldn’t worry about his time on your account if they are running larger AUM, a decent trade allocation policy will make it a non issue as they are looking at things as 1 portfolio in most instances.
You will likely have trading costs that you will bear, buy/sells if you will depending on where you custody your IRA. Depending on turnover and such this could be an issue…in a mutual fund these end up being cents per share but it will depend on your account what that is (~$7/share, etc). Don’t ignore this.
A lot of other benefits you may not reap given the size and account status, namely the ability to customize what you want them to do/not do or tax management (given its an IRA this isnt a value)…but hey that might just be gravy.
Personally, I have no experience with SMA’s and do not have any literature to show their performance vs. mutual funds. But here’s my very ignorant .02 anyway.
What’s the difference between SMA’s and mutual funds? With one, you have a group of experienced professionals who are attempting to limit your dowside risk while picking securities that will outperform the markets, and with the other one, you’re getting…ummm…a group of experienced professionals who are attempting to limit your downside risk while picking securities that will outperform the market.
With SMA’s, you can tell the manager how to invest your funds. Things like “no alcohol/tobacco”, “limit turnover to 10%”, or “no short-term gains”. But if you know better than the manager, why don’t you do it yourself?
Plus, with SMA’s, you bear the cost of each trade. And you get a trade confirmation with each trade. So you better get a bigger mailbox. And expect your tax prep fees to go up.
Oh yeah. And don’t forget about the 1% expense ratio.
Once you add all these up, I’m not sure that an SMA will give you better performance than a basket of low-fee index funds or ETF’s.
^ETFS/Index funds aren’t the same as mutual funds. I’m sure you know this, but you switched gears mid reply. And there are some sectors that don’t have good index or ETF funds to get exposure to them.
Everything about this is odd. Retail SMAs are an oddity unless you have several million to invest. If this guy is really pulling down huge returns every year, setting up a retail SMA really isn’t worth his time. And 1% for any SMA outside the liquid alt space is still pretty expensive.
Given the information provided, you’re setting yourself up to get your wallet stolen by a fat hooker. Wasn’t once enough?
The minimum for most accounts is $1m. He’s making an exception for me.
The 1% fee is for the wrap account that includes trade fees/commissions. The account I would transfer over is an IRA so tax implications would be a nonissue.
Thank you for reminding me about the fattie. I think it was about this time last year that it happened.