Do This to Avoid Owning Stock You Don’t Want

A Separately Managed Account Offers a Little-Known Advantage Over Mutual Funds

The marketing clout of the mutual fund industry is enormous. A seemingly endless number of commercials bombard investors over every possible avenue of communication.

Surely, funds have been a boon to investors. However, they do have their shortcomings, as we have pointed out at length before. Perhaps the greatest is that, in one sense at least, they are designed to be one-size-fits-all.

There are certainly different types of mutual funds and Exchange Traded Funds to meet an incredibly wide range of investment preferences. But once the type of mutual fund has been chosen, whether it be a small cap growth fund or a preferred stock fund, that’s where your choice ends. And that’s where your problem might begin.

If you really do not want to own shares in a business your mutual fund owns a lot of: sorry, not an option.

Just recently I received an email from a potential client who was interested in investing with us but didn’t want to invest in “Apple, Microsoft, Amazon and Facebook.” Apparently, his current mutual fund has those companies among its largest holdings and he wanted to eliminate them from his portfolio. As an owner of mutual fund shares, as opposed to owning shares in the companies directly, there is no way to avoid those companies while staying within the confines of the fund. His only recourse is to sell all of his mutual fund shares and find another investment.

Our clients’ accounts are fundamentally different from mutual funds.

We use what are known as Separately Managed Accounts (and, like mutual funds, we have written at great length about them previously). In a Separately Managed Account, our clients own shares directly in each company within their portfolio. Therefore, if particular companies are unacceptable, like “Apple, Microsoft, Amazon and Facebook,” we are able to code your account so those companies will never be purchased, even if they would normally be included as part of the equity strategy being employed. There is no limit on the number of companies that can be excluded this way and we already have a number of clients who filter out specific businesses for a variety of reasons. For example, we have a client who has excluded over 1,500 companies in this way!

There are other reasons to consider this feature besides moral or ethical ones. Perhaps you work at a publicly traded company and part of your compensation is paid in stock options. Over the years, you may have accumulated an outsize position in your company’s stock and don’t wish to add even more in your investment accounts. Or you might not want to add extra risk to your finances by having both your employment and investments tied to a single company. You might simply object to investing in a competitor if it can be easily avoided. There are many reasons why you might be opposed to buying shares of a specific stock and a separately managed account can accommodate all of them.

If you know that there are companies you wish to avoid, for whatever reason, the first thing to do is see if you already own shares in them. Chances are there are some surprises in store as you examine your portfolio. Or, if you prefer, we can review your holdings for you. Just tell us what you want to avoid and we’ll take a look. Either way, our Separately Managed Accounts let you take control of your investments!

Contact us today to see if your retirement portfolio has any hidden surprises.

Post from: Insights