Custom Municipal Bond Portfolios Surge to $1.3 Trillion, JPMorgan Reports
Demand for personalized investment strategies is driving significant growth in separately managed accounts (SMAs) focused on municipal bonds, according to a new analysis from JPMorgan Chase & Co. These bespoke portfolios have expanded to hold an estimated US$1.3 trillion across approximately 180 managers, marking a notable six percent increase from the previous year.
The Rise of Separately Managed Accounts in Municipal Markets
Once considered exclusive to ultra-high-net-worth individuals, SMAs have gained popularity among a broader client base as account minimums have decreased. These accounts are professionally managed, but unlike mutual funds or exchange-traded funds (ETFs), each client directly owns the underlying securities. This structure allows for:
- Greater personalization of investment portfolios to meet specific financial goals and risk tolerances.
- Enhanced tax-loss harvesting opportunities, as managers can tailor transactions to individual tax situations.
- Reduced concentration risk compared to pooled investment vehicles like open-end funds and ETFs.
JPMorgan analysts highlighted that the growing interest in SMAs has made them "the largest form of demand aggregation in the municipal market." The total assets include US$247 billion in corporate assets under management (AUM) and US$1.12 trillion managed for individual investors.
Comparative Growth and Market Dynamics
While SMAs have shown robust expansion, municipal bond assets in ETFs have grown even more rapidly, roughly doubling since 2021. In contrast, SMA assets increased by 29 percent over the same period. This divergence underscores the evolving landscape of municipal bond investment vehicles.
The analysts noted that the lesser concentration of assets in SMAs compared to traditional funds may stem from their personalized management style. This characteristic suggests potential opportunities for smaller, localized operators to compete effectively in the market.
JPMorgan's findings emphasize the shifting preferences of investors toward customized solutions that offer direct ownership and tailored strategies. As the municipal bond market continues to evolve, SMAs are poised to play an increasingly central role in meeting investor demand for flexibility and personalization.
