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Demand for tailor-made investments is fuelling a surge in personalized portfolios of municipal bonds.
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Separately managed accounts that invest in muni assets now hold an estimated US$1.3 trillion across 180 managers, according to JPMorgan Chase & Co. That’s up six per cent from a year ago.
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Once designed for only the wealthiest investors, so-called SMAs have become popular with a broader range of clients as account minimums decrease. These portfolios are run by a professional money manager, but each client owns the securities directly instead of in a pool with other investors, like with mutual funds. That allows for a greater degree of personalization and enhanced tax-loss harvesting.
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The growing interest in SMAs has made it “the largest form of demand aggregation in the municipal market,” JPMorgan analysts wrote in a report. The US$1.3 trillion in assets includes US$247 billion in corporate AUM and US$1.12 trillion in AUM managed for individuals.
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The analysts also found that muni assets in SMAs are notably less concentrated than they are in open-end funds and exchange-traded funds.
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“This lesser concentration among fund complexes may stem from the personalized nature of this management style, suggesting opportunities for smaller, localized operators,” they wrote.
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Despite the growth in SMAs, muni assets in ETFs have risen even faster, roughly doubling since 2021. The assets in SMAs have increased 29 per cent for that same time period, according to the report.
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—With assistance from Vildana Hajric and Isabelle Lee.
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