Selecting an SMA manager: What’s in it for you and your client?

When it comes to SMAs, clients are typically looking for four things: performance, consistency of returns, transparency of their investment portfolio, and tax-effective returns that offer high yield and capital growth.

This was the view of Andrew Stanley – Head of Australian Equities at Ralton Asset Management – who believed SMAs offered all the key benefits investors were looking for in an investment vehicle.

Speaking at the IMAP Investment Forum in April, Stanley said SMA structures were superior in many ways to other traditional investment platforms, like managed funds and direct share portfolios, because they ticked more key investor benefits boxes. These include:

  • Professional management;
  • Transparency;
  • Direct ownership of assets;
  • Portability of shares (without triggering CGT);
  • Tax advantages of ownership (no inheritance of capital gains from others);
  • Customisation;
  • Portfolio reporting and administration; and
  • Low cost structure (Managed Accounts eliminate one layer of custody/administration fees).

Stanley said that when it came to selecting an SMA manager, licensees and planners should take care in selecting the right manager.

As a manager of SMAs, Ralton Asset Management aims to deliver on six key metrics, as outlined below.

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Market volatility

In addressing the topic of whether market volatility was over, particularly against the macro backdrop which has seen – quantitative tightening and a wind down of quantitative easing accelerating during 2018; the U.S. Federal Reserve’s attempts at raising interest rates; China deleveraging; a slowdown in emerging markets; and the China-U.S. trade war – Stanley said there were positive signs ahead for the Australian economy.

“Locally, we’ve seen an improvement in our terms of trade, continuing spending in infrastructure, fiscal stimulus from last year’s May Budget, the effect interest rate cuts and the building of new dwellings have had on house prices and the ability for people to enter the housing market, and we’re seeing mining capex making a come back,” Stanley said.

Stocks we like

Riding these tailwinds, Stanley nominated the following three stocks Ralton Asset Management was currently favouring in its investment allocation.

  1. Amcor (AMC)

Amcor Limited is a global packaging company. It develops and produces flexible packaging, rigid containers, specialty cartons, closures and services for food, beverage, pharmaceutical, medical-device, home and personal-care, and other products.

“This global packaging company offered predictable earnings and dividend growth. It’s also currently undertaking a major merger with Bemis – a global manufacturer of flexible packaging products and pressure-sensitive material,” Stanley said. “Amcor has an attractive growth profile for the next few years, making it a good defensive stock.”

  1. Mineral Resources (MIN)

Mineral Resources is a service provider across the mining supply chain – from mine to port. It has an experienced management team and is quickly becoming a world leading lithium producer.

“With the growing global move to electric cars and with Mineral Resources being a world leading lithium producer, which is required for batteries, this is an attractive company to invest in,” Stanley said.

  1. Aristocrat (ALL)

Aristocrat Leisure Limited is an Australian gambling machine manufacturer, which is progressively moving into the digital and online gaming market.

“Aristocrat moved into the digital gaming business about six years ago,” Stanley said. “As a business, it has attracted a lot of talented online gaming developers, who have developed the sorts of games that appeal to users. It has a strong balance sheet and free cash flow generation model.”

Banks

With the “golden era” of credit growth over, and has been since the GFC, Stanley warned that the Australian banking sector was one to watch closely.

“The headwinds facing this sector are known,” he said. “There’s slowing credit growth and the Royal Commission’s recommendations to deal with. However, it’s not all bad news for the banking sector. The Royal Commission’s recommendations were not a disaster for the sector, and the banks do have capacity to restructure their cost base.”

However, Stanley warned there were still a number of concerns facing the banking sector including remediation costs to customers affected by bad corporate practice and the Reserve Bank of New Zealand requiring banks operating in New Zealand to double the amount of capital they must now carry.

“Not withstanding these concerns, I still believe the banks will continue to offer a relatively attractive yield but with low growth,” Stanley said.

The IMAP Investment Forum is a community of interest for dealer group researchers, investment teams and independent researchers, where they can hear and learn from specialist portfolio managers and chief investment officers of advisory businesses. These experts and advisory professionals provide their insights on the practical issues involved in implementing managed accounts in an advice business.

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