Lonsec to rate SMAs and their platforms
Lonsec will expand its research capability to rate both separately-managed accounts (SMAs) and the platforms on which they are offered to investors, with the first ratings of model portfolios now in train, and those for platforms set to be released early in the last quarter of this year.
Contracting consultant with Lonsec, Jason Patton, said the research house had been building out its SMA model portfolio research capabilities as a natural extension of its managed funds process and would be using it as the basis for the SMA ratings.
Patton said that where a fund manager also ran an SMA, Lonsec would start by examining the model portfolio of stocks within the SMA — and their portfolio weightings — and compare them with those stocks held by the manager within the unit trust to provide a rating on the SMA.
SMAs rated by Lonsec will use the same ratings scale as the company uses with managed funds, but annotated with explanatory statements on how they were rated as SMAs and how these differ from unit trusts.
Platforms will be rated with a simple ‘approved' or ‘not approved' system, with Lonsec looking at approximately 10 of the primary SMA platforms currently operating in the market.
Patton said Lonsec's new research coverage of SMA platforms would be based on the process that Lonsec's sister company SuperRatings carries out when examining the structures, platform technology and administration capabilities of super funds under review.
"From a research house perspective, the SMA platforms are most often the responsible entity, as well as thetechnology, administration and custody forum in which the managed accounts are delivered," Patton said.
"Given that we devote time in our managed funds reports to fund structures, including any third-party relationships, process and pricing, we will have similar considerations with SMA model portfolios in their interface with the platforms," Patton said.
Patton said Lonsec would also establish an ‘SMA model portfolio peer group', to enable planners using SMAs to make comparisons among model portfolios only. However, to cater to vehicle-agnostic advisers, it would also seek to line up unit trust managers with SMAs which have similar characteristics and would look to release this to market once the peer group was established.
The project falls under the oversight of Lonsec general manager of specialised research Michael Elsworth, who will oversee the execution of the research and rollout to market.
The move is part of an expansion of Lonsec's capabilities under parent company FRH and follows the withdrawal of Standard and Poor's (S&P) from the local market last year. S&P had begun to research the managed account sector.
Patton, who had worked with S&P, said Lonsec had taken its cue from S&P's departure and would leverage its SuperRatings connection to build up its own capabilities, and would be the only research house to provide SMA model portfolio and platform research across the market.
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