Which Should Be Your Top Pick, Separately Managed Accounts or ETFs?

Xianwu Zhang (), Tao Guo, Yuanshan Cheng and Haiyan Wang
Additional contact information
Xianwu Zhang: Department of Economics and Finance, Boler College of Business, John Carroll University, University Heights, OH 44122, USA
Tao Guo: Morningstar Investment Management LLC, 22 West Washington Street, Chicago, IL 60602, USA
Yuanshan Cheng: Morningstar Investment Management LLC, 22 West Washington Street, Chicago, IL 60602, USA
Haiyan Wang: Department of Finance, Ambassador Crawford College of Business and Entrepreneurship, Kent State University, 800 E. Summit Street, Kent, OH 44242, USA

JRFM, 2024, vol. 17, issue 5, 1-19

Abstract: This paper examined a large sample of equity SMAs (separately managed accounts, hereafter) from 1999 to 2023. This paper found that separate accounts have much higher expenses than ETFs and may outperform or underperform ETFs in terms of gross return and net return depending on their investment styles. However, this paper found that separate accounts consistently outperform ETFs in terms of risk-adjusted gross and net return alphas across different investment styles using the Fama and French Three Factor Model. Additionally, this paper found no significant evidence that tax is proactively managed within separate accounts. Lastly, this paper found that on average SMAs’ risk-adjusted alphas do not persist over time.

Keywords: SMAs; performance; persistence; expenses; tax customization (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:17:y:2024:i:5:p:190-:d:1388880

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