Asset manager calls SMA-like portfolios a low-cost, low-maintenance solution. IXIS Asset Management Advisors has launched a separately managed account (SMA) program of exchange-traded fund (ETF) portfolios. The Boston-based asset manager sees a big future in supplying intermediaries with pre-set or customized ETF accounts with SMA characteristics for their retail, high-net-worth and institutional clients.

IXIS’ “Managed ETF Portfolios” (MEPs) program combines the comparatively low-cost diversification attributes of ETFs with the rebalancing and tax-management characteristics of SMAs, according to Matt Witkos, head of marketing for IXIS Asset Management Advisors. “[Intermediaries] have been looking for a simple platform to accommodate ETFs, [and] we needed to think of a way to deliver it to them,” he says.

With investment minimums of $100,000 or more, individual SMAs can be an expensive way to get diversification across five or six asset classes. Investors can get similarly broad allocations with minimums as low as $150,000 in multi-discipline accounts (MDAs) – single-registry accounts with complementary asset “sleeves.” But at a minimum investment of $50,000, IXIS’ all-ETF approach can accommodate as many as 14 asset classes in a single portfolio while providing SMA-like oversight and customization – and for what Witkos calls “really a nominal fee.”

Different

Steve Braverman of Tahoe Advisers, a specialized derivatives and structured products consultancy based in Englewood Cliffs, N.J., thinks IXIS could be on to something with its MEP program. “This is truly a unique concept,” he says. “[Though] the concept of active fund management is not new, the application of the practice to a strategy solely involving ETFs definitely is.”

IXIS Asset Management Advisors’ president and CEO John Hailer says that MEPs can work for a variety of investors. Institutional players, “401(k) plan sponsors in particular,” can use them to meet their fiduciary responsibilities to manage risk and control investment costs, he says. “For individuals, MEPs provide a comprehensive asset-allocation solution with a low minimum-investment and significantly lower fees over time,” he adds.

And Witkos says MEPs have already had some high-net-worth takers – the result, he explains, of concentrated-stock-rich employees of a prominent technology company getting advance word of the program.

Braverman has no trouble believing that. “We’ve been seeing more and more wealthy families becoming interested in ETFs,” he says. And he adds that IXIS is “a very well respected name in the high-net-worth and family-office space” with an “outstanding reputation as an innovative tax-managed advisor.”

Growth

Assuming there’s room for the $250-billion ETF market to grow within the SMA space, MEPs could put IXIS is in a good position to capitalize on that growth. SMAs accounted for about $615 billion in assets at the end of June, according to Cerulli Associates, a Boston-based research firm. And the Money Management Institute, a Washington-based association of SMA managers and sponsors, sees SMA assets reaching $1.3 trillion by 2008 – with a rising portion of those SMA assets going into MDAs and other multiple-style vehicles such as unified managed accounts (UMAs).

But it remains to be seen whether advisors will come to view MEPs as a cheaper, more flexible and less administratively arduous way to offer diversified, individually managed accounts than either MDAs or UMAs.

Other asset managers with actively managed ETF-portfolio programs include San Francisco-based Advisor Partners, San Mateo, Calif.-based AssetMark Investment Services and Orinda, Calif.-based Litman/Gregory.

Active

IXIS' MEPs come in six pre-set varieties. Four are designed to match client risk profiles through broad allocations to equity and income asset classes. The other two are meant to generate income by focusing on what IXIS calls “yield-oriented” asset classes. The program also accommodates customized portfolios based on security indices, sectors, geographic regions – even a particular economist’s or firm’s views on the market. “We can pretty much go in any direction you want,” says Witkos.

Active Investment Advisors, IXIS’ indexing division, developed the MEP program. IXIS bought Active – formerly Active Index Advisors – late last year in a bid, as it said at the time, to be in the vanguard of managers offering active indexing to intermediaries serving wealthy SMA investors. Active’s bread-and-butter is putting together customized index portfolios whose underlying securities are directly owned by the investor. Then – in what Active describes as “the major innovation” of its approach to indexing – it actively manages those portfolios by sheltering gains and harvesting losses with an eye to increasing the investor’s after-tax returns.

Active’s experience as an index manager made it an obvious choice to select the third-party ETFs that make up its pre-packaged and custom-tailored MEPs, says Witkos.

Overlay

In running MEPs, Active works with Managed Portfolio Advisors, IXIS’ overlay management unit, which shares its Oakland, Calif., headquarters. In the context of multi-discipline accounts, overlay management is the process of aligning trades, managing cash flow and enhancing the overall tax efficiency of portfolios.

Thanks to Managed Portfolio Advisors – which oversees about $8 billion in MDA assets – IXIS has made a name for itself in the multi-discipline realm. Sponsors that use its MDAs include Ameriprise (formerly American Express Financial), UBS, Linsco Private Ledger and Merrill Lynch.

Boston-based IXIS Asset Management Advisors is the U.S. distribution arm of IXIS Asset Management Group, a unit of Paris-based Groupe Caisse D’Epargne. IXIS Asset Management Group had assets under management of $495 billion at the end of March 2005. –FWR

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