Strategy
Investing
Australia

Separately Managed Accounts

22 Apr 2020
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Separately Managed Accounts: how do they work?

What are Separately Managed Accounts?

Separately managed accounts (SMAs) are structured to provide each client with their own account but delegate the responsibility of management, maintenance and monitoring to a third party. Using this structure, you do not have a HIN (holder identification number) associated with the holdings as they are held with a custodian. As an investor, you still retain the beneficial ownership of the securities purchased under the SMA structure as well as most rights a regular shareholder receives. Franking credits, dividends and stocks alike are registered under your name and the only major difference is that voting rights are delegated to the SMA manager, which in this case is Rivkin. Typically, this is to ensure that when voting events occur, the voting power of all accounts is used to provide the most possible benefit to our clients.

Advantages over Unit Trusts (Managed Funds)

This type of structure differs from that used by managed funds or unit trusts whereby the investor allocates capital to the fund in exchange for an ownership stake in the fund, often referred to as a unit. An advantage that SMA’s perhaps provides over funds is that the investor retains ownership rights over the holdings, meaning if anything was to happen to the managing parties, such as bankruptcy, then your position is not compromised as holdings are registered in your name.

Because all funds allocated by individual investors are pooled together, Rivkin is able to secure a low brokerage rate of 0.055% per trade and the overall cost can be reduced. This is particularly relevant for smaller portfolios which are able to avoid minimum brokerage costs that might represent a disproportionate percentage of their overall portfolio value that would come in achieving the same diversification and trading regularity.

SMA strategies used by Rivkin

Rivkin currently is the investment manager for Mainstream SMA products.  We provide investors with four types of strategies to ensure that different investment approaches can be satisfied.

Smart Growth

Smart Growth focuses on ASX200 companies and combines fundamental and technical elements of the pre-established Rivkin Momentum strategy and Rivkin Value strategy. The strategy holds a target return of 15% p.a and will attempt to hold 15 to 20 stocks that will emphasise growth and provide exposure to higher returns with above-average market volatility. Click here for more details.

Defensive Income

Defensive Income, as it sounds, prioritises dividend income above growth, and aims to reduce exposure to market volatility and will gain further diversified stability from holding a more extensive array of companies, which typically sit in the ballpark of 27 to 30 stocks at any one time. ASX50 constituents and particular hybrids that are defensive in nature are used, and the overall strategy attempts to retain low levels of volatility. Click here for more details.

Global Growth

Global Growth provides investors with additional diversification opportunities when compared to the Smart Growth strategy through exposure to US markets. The strategy has a targeted return of 15% p.a and invests in 20 to 35 stocks from either the ASX200, S&P500 and NASDAQ 100 and provides additional diversification advantages through providing exposure to the USD.  Click here for more details.

Capital Stable

Capital Stale is defensive in nature, uses ETF products and attempts to identify four negatively correlated asset classes that can be combined within a structured portfolio to retain low levels of volatility. This strategy, in many ways, is seen as a cash alternative for investors who are targeting between 4 and 5 per cent p.a and prioritize stability over return. Click here for more details.

Costs

Another advantage of the Mainstream SMA strategies is their relative cost. No upfront costs are associated with the use of these products and brokerage rates used are competitively priced below the typical retail brokerage rate, at 0.055% (roughly half the rate of the lowest online brokerage rates).

Management fees stand at an annual rate of 1.55% plus GST charged on a monthly basis, except for the Capital Stable strategy which stands at 1% plus GST due to the low level of trading.

Performance Fees assigned use a high watermark fee structure to ensure that the interests of the investor and the actions of the managing body (Rivkin) align. A fee of 10.5% is charged on ‘additional’ profit only ensuring that performance, or lack thereof, is accurately represented. For the Capital Stable strategy, once again, a lower performance fee of 5% of ‘additional’ profits is used.

Key parties involved in the SMA process

Firstly, Perpetual* is the designated ‘responsible entity’ . To understand full responsiblities of an RE please refer to the PDS. However, simply put Perpetual reviews the structure and all parties involved comply with current regulation. In this case, Perpetual has outsourced stock selection and portfolio structuring to Rivkin to ensure potential clients can gain access to the performance achieved by Rivkin strategies.

Additionally, Perpetual has outsourced custodian and administration services, such as accounting and transaction recording, to Mainstream.

The process of setting up a SMA is very simple. Once the appropriate paperwork has been filled out and verified the next step is to decide which strategy best suits your own interests and then begin allocating the capital you wish to use.

For additional information or support related to the use of SMA’s please click here to view a webinar about Mainstream SMA’s or fill in the SMA information form below.

 

*This product PDS is issued by The Trust Company (RE Services) Limited a part of the Perpetual Group, ABN 45 003 278 831,AFSL No 235150.
Please search our website or request the PDS to understand full risks and cost of the product before taking decision to invest in it.

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