What Value Do Separately Managed Accounts (SMAs) Bring to Your Bond Portfolio?
At Goldman Sachs Asset Management, we see a growing demand for customized investment solutions that fit clients’ specific needs.
SMAs are the fastest growing investment vehicle in the fixed income landscape in terms of annual AUM growth, and represent an important focus area among our clients. From 2020 to 2024, SMA assets under management (AUM) posted a compound annual growth rate (CAGR) of 29% as opposed to the 7% CAGR of the total fixed income market AUM.¹
Here are five questions on fixed income and SMAs that we believe are worth considering.
1. What is driving the growth of fixed income SMAs?
SMAs have become a popular powerful tool within client portfolios, given their ability to tailor investment objectives to individual risk tolerances while also providing daily transparency into holdings. Owning a bond portfolio that evolves with a client’s tax situation or risk tolerance is a cornerstone of SMAs—there is no one size fits all solution.
Tax efficiency is another reason for the growth of SMAs. They allow investments to be personalized to an investor’s federal tax status and state residence. A portfolio manager can pick and choose fixed income securities based on their tax treatment to increase tax equivalent yields.
Tax-loss harvesting can also be additive to returns when done in a disciplined manner and executed properly. The process involves reviewing available losses and can contribute meaningfully to a portfolio’s tax efficiency. It is crucial to identify appropriate re-investment options that maintain the portfolio’s structural integrity and risk metrics, but are also compliant with various constraints including potential application of the wash sale rule. Finally, executing the swap generally requires sophisticated and timely execution to simultaneously sell and buy positions.
The role of financial advisors has evolved from brokers investing in individual bonds to advanced wealth planning focused on holistic investing, leading to multi-sector SMAs becoming part of their tool kit. Advisors need to therefore consider whether this increasing trend of personalization could benefit their clients.
2. What is the opportunity in fixed income today?
The pillars for owning fixed income have remained intact over time, namely principal preservation and a “ballast” to equity returns. Additionally, income is finally back – providing a strong tailwind for returns going forward. Yields have steadily risen over the past few years, but with the current easing cycle progressing, investors have the chance to lock in higher yields now. Historically, income provides a majority of overall bond returns which should entice investors back into the asset class. Investors can also preserve capital by fixed income’s position in the capital structure, predictable income streams, and defined maturity values.
Fixed income also has historically outperformed during easing cycles. Intermediate municipal and corporate indices posted higher 12month forward returns than cash in the past 3 cutting cycles. On average, cash earned 3.06% whereas the intermediate municipal and corporate indices earned 4.72% and 5.22%, respectively.²
3. Beyond personalization, how can actively managed SMAs enhance fixed income portfolios?
A volatile market environment can be advantageous to actively managed portfolios as they tend to have more alpha levers to pull. As an investor, it’s important to recognize that elevated uncertainty brings additional opportunities across the bond market—from tax-loss harvesting, yield curve positioning, credit changes and dynamic asset class exposure.
By strategically allocating across asset classes (such as corporates, municipals and Treasuries) active managers may position portfolios to increase after-tax returns for each client. Disciplined risk management is critical for the credit selection process and maintaining portfolio integrity. When it comes to manager selection, we believe investors should look for consistent control of overall portfolio risk with respect to duration and minimum average credit quality. An active approach is particularly beneficial during periods of market stress, allowing portfolio managers to be more tactical and nimble within accounts.
4. What should I consider before moving a client portfolio to an SMA?
Trillions in fixed income dollars remain in un-managed/brokerage accounts. These accounts often lack ongoing credit oversight, face hidden mark‑ups on trades, and tend to be static without a market view. Transitioning to a more holistic strategy can add value to these portfolios as shifting to an SMA often involves a full credit review, proper interest rate risk positioning, and tax-loss harvesting. On a go-forward basis, there is professional credit and interest rate risk management, tax management, and institutional price execution. Now is a favorable time to transition given most of these brokerage positions have started to roll down and mature.
SMAs can also be additive for the assets that sit in short-term fixed income instruments. Most high-quality fixed income investments now out-yield those securities and can appreciate as rates fall. Transitioning some short-term investments into longer-term fixed income portfolios to lock in yields for longer may be prudent.
5. How would these transitions work in practice?
When transitioning a portfolio, an important consideration is whether it makes more sense to take an active or passive approach. An active transition may involve turning over portions of the existing portfolio and restructuring toward the new objectives in a timely manner. In these instances, portfolio managers may look to reduce tax consequences as much as possible while restructuring the portfolio. In other instances, clients may prefer a passive approach depending on the potential tax implications, transaction costs, or other considerations. When taking a passive approach, securities are generally held to maturity, and then cash is deployed according to the new strategy parameters as existing bonds roll off and coupon payments come due.
Advisors and clients should work closely with portfolio managers to help determine the optimal transition approach for each unique circumstance. Often times, multi-sector SMAs may be funded in-kind with securities from single-sector strategies. Portfolio managers may play a critical role in determining the most effective way to restructure these portfolios initially and on an on-going basis.
1 Growth rates based on Cerulli Lodestar measured by total AUM as of December 31, 2024, recurring quarterly. Goldman Sachs Asset Management and Cerulli Associates products are not related, and Cerulli Associates have not endorsed either Goldman Sachs Asset Management or its products.
2 Source: Bloomberg as of June 30, 2025.
