What is an SMA?

An SMA is a portfolio of professionally managed direct securities. However, unlike traditional managed funds, where investors hold a unit in a trust, an SMA enables investors to enjoy the benefits that come from direct ownership.

What are the benefits of an SMA?

Direct ownership coupled with professional management

When you invest in an SMA it’s just like holding direct shares, but with the added benefit of being able to draw on the insight and expertise of professional managers who are equipped to take advantage of opportunities and respond to market challenges. SMAs also support greater management flexibility. If we believe a change in fund manager is necessary at any point, the SMA structure removes the need to sell down portfolios to replace them with new managers, which means the integrity of your portfolio is maintained.

A transparent approach

Understanding how your investment works starts with understanding how your portfolio is managed. SMAs provide greater transparency. Investors are able to see exactly what stocks they own and the transactions that have taken place.

Cost effective, tax efficient

Minimising the incidence of costs and taxation is an important component of portfolio management that’s often ignored. SMAs support greater efficiency and, as a result, enable us to reduce the cost of investment, with investors able to benefit from lower transaction fees than they would if trading directly.

The tax benefits associated with SMAs are also compelling. Unlike those invested in a managed fund, an individual’s tax position is not affected by the decisions of other investors within the SMA. All tax benefits flow directly to the investor. This allows us to make tax aware decisions where possible to maximise after tax returns.

How does TFM select investments?

We follow a rigorous approach to investment selection, which allows us to identify investments, asset classes and fund managers that we believe are best placed to achieve the targeted risk-adjusted returns across each timeframe. The selection of investments and fund managers is also underpinned by both quantitative and qualitative research.

Why is Goals-Based Investing different?

To gain a greater understanding of goals based investing, it’s helpful to know how it differs from other more traditional models.

Many portfolios are built based on an investor’s risk tolerance profile first and foremost – not what they seek to achieve – using what’s known as Strategic Asset Allocation. This provides little flexibility when it comes to actively adjusting a portfolio’s asset allocation.

In a goals-based approach, portfolios are dynamically adjusted to take advantage of market opportunities and to manage risk, an approach known as Dynamic Asset Allocation.

Central to this method is flexibility and responsiveness. Conversations becomes less about underperforming or outperforming an index and are instead more focused on targeting a specific outcome – an investor’s goals.

What is Cash Flexibility?

Each portfolio contains within its mandate the ability to hold up to 50 percent cash. This distinguishing feature is important for two reasons:

Cash should be invested at a time when there is value in the underlying asset, not necessarily at the time cash is received. Many managers invest cash immediately, because their mandates specify that each portfolio must be fully or close to fully invested. We recognise that there will be times in the market where it just doesn’t make sense to immediately deploy all capital, and our mandate provides us with the flexibility to make more considered decisions.

There are also times when market conditions will indicate that a correction is at a much higher than average risk of occurring. The cash flexibility, combined with other strategies, can help us to manage this risk.