Efficient Market Buying XTF SMA Assets
March 04, 2008
Efficient Market Advisors, a pioneer in using exchange-traded funds in separately managed accounts, says it has agreed to purchase the accounts of a smaller New York-based money manager.
While terms and asset sizes weren't made public, Efficient Market Advisors Chief Executive Herb Morgan says the deal should provide enough new accounts to make his firm "the front-runner in the ETF SMA space."
The firm, which is selling its SMA accounts-XTF Global Asset Management-has reportedly been struggling in recent years. Originally a market maker on the American Stock Exchange, it hired a new chief executive, Melvin Herman, in mid-2007. It has a money management arm known for its ETF-based portfolios.
Besides working with SMAs, XTF Global offers ETF portfolios through unit investment trusts in retirement plans along with open- and closed-end funds. Officials from the company didn't immediately return inquiries Tuesday regarding the deal.
The use of ETFs in SMAs is still in its formative stages. Morgan has said that his firm has more than $1.3 billion in client assets under management, already making it one of the biggest ETF platform providers in the SMA field. The lone exception would be large wire houses with in-house ETF platforms for their brokerage customers.
Efficient Market Advisors was formed in July 2004 by Morgan, a former executive at Linsco/Private Ledger. Before that, he also served as an executive at fund companies Dreyfus, J&W Seligman and ING Funds.
"ETFs aren't big yet in SMAs," Morgan said. "But people are expecting that's the next big wave as ETFs' phenomenal growth slows a bit in the retail space."
Separately managed accounts are set up individually for clients. Instead of investing in funds, typically their managers buy stocks, bonds and other securities on a personally tailored fashion. "If you have your own SMA, you can manage your account for tax purposes much more efficiently," Morgan said. "And if you've got $100,000 or more, it's generally a cheaper way to go than investing in mutual funds."
Besides expenses tied to ETFs, customers pay management fees determined by advisors. "Most of our business comes from independent advisors," Morgan said. "We're a money manager and sometimes people come to us directly."
In most cases, Efficient Market Advisors serves as money managers for advisors. Morgan says it's a huge new industry that's opening up. "The industry reports now available only track mutual fund and individual security assets," he added. "But they don't really follow how many ETF assets are in wrap accounts. But that's probably coming soon."
SMAs are also referred to as wrap accounts. Even with ETF expenses and the firm's own fees, Morgan says the total for wrap accounts still is less than the average mutual fund's expense ratio.
The merger firms will be headquartered at Efficient Market Advisors' main location in Del Mar, Calif. "We're only buying the SMA assets of XTF," Morgan said. "We're not bringing any of their people over in this deal."