Separately Managed Accounts

What is a Separately Managed Account (SMA)?

A separately managed account is a model portfolio administered by an investment manager where the investor owns the underlying investments. The investment manager decides on the appropriate weightings for each investment and any changes are effected across each investor’s portfolio.

This is in contrast to a managed fund, where the investments in the fund are pooled and investors own units in the fund and not the underlying investments.

Advantages of investing in an SMA

Investors have 100% visibility over the investments in the portfolio. Investors are able to log onto the Oracle Investment Management portal and view each of the investments in their portfolio and their values in real time.
The investor has beneficial ownership of the shares in the portfolio, not units in the fund.
Investors have the ability to customize the portfolio with the ability to either exclude or include companies in the portfolio.
The SMA provider takes care of all the reporting, making it easy for your accountant to calculate capital gains, income and franking credits when preparing your tax return and accounts.
Low minimum investment amounts mean that individuals can invest in an Oracle SMA with as little as $25,000.

Why Invest in a Separately Managed Account (SMA)?

There are many benefits to investing in a separately managed account, see these detailed below:

The best of both worlds

Separately Managed Accounts combine the best elements of a managed fund together with the advantages of direct share ownership.

Cost effective

Investment technology has vastly improved in the last decade, allowing for more efficient and cost-effective management of the portfolios. This keeps costs low for investors and is evidenced by our low management fees being between 0.55% and 0.95% of the portfolio value.

Simplified reporting

A portfolio of individual investments would typically result in complex management of buy, sell, and dividend confirmations. Our administration software provides quarterly and annual reporting to keep investors informed and portfolio administration simple. Clients can also view their portfolios online 24 hours a day.

Portability

Unlike a managed fund, shares can be transferred into and out of the SMA. This means that moving shares from a direct equity holding into or out of the SMA does not trigger a capital gains tax event.

Netting of transactions

When an investor buys or sells shares on the stock exchange they will normally pay brokerage or transaction fees. Whilst the same is true with transactions within an SMA, when multiple investors inside the scheme add or redeem investments at the same time it is possible for these opposite transactions to net each other out, thus avoiding the stock exchange costs. This reduces the brokerage that SMA investors will pay over time.

The following table compares the features of an SMA, a managed fund and direct equity holding.

Share Purchase Plans

One of the major benefits of using an SMA is that you are able to access share purchase plans that are provided by ASX listed companies on a regular basis. A share purchase plan (SPP) is a method of raising capital whereby listed companies allow shareholders to purchase up to $30,000 in their business.

The company usually issues these new shares at a material discount to the current market price. In addition, the shares of the company continue to trade while the investor decides whether they wish to participate in the share offer, thus providing shareholders time to consider the potential capital gain by comparing the SPP price to the current share price.

At Oracle we are permitted to invest up to 10% of a model portfolio into one company. When shares are offered at a material discount to the current market price, we regularly allocate the full 10% of the portfolio to a company at the discounted price. For example, consider the following circumstances:

The client has $300,000 invested in the Oracle Australian Equity Model.
Company X is currently trading at $10.00 per share.
Company X decides to raise capital and allows shareholders to purchase up to $30,000 of shares at $8.50 per share.
The investor applies for and is allocated 3,529 shares at $8.50 for a total cost of $30,000.
These 3,529 shares continue to be valued on the ASX at $10.00 = $35,290.
The investor has therefore made a gain of $5,290 which is a portfolio return of 1.8% in a relatively short period of time.

At Oracle we are able to apply for share purchase plans for every individual investor. This facility is not available for most model portfolio managers or fund managers and is a particular attraction of utilising the Oracle model portfolio structure.

Share purchase plans occur on a regular basis on the ASX and are a common reason as to why Model Portfolios outperform managed funds. Managed funds are only able to apply once for a share purchase plan and therefore a $30,000 investment for a multi-million-dollar managed fund is immaterial and adds almost nothing to their investment performance.