Wealth managers using ETFs in the US are stepping up to create their own in-house range of the products. Andrew Mies, CIO of 6 Meridian, explains how his USD2.8 billion wealth advisory firm based in Wichita, KS, has done just that.
May saw the firm launching four ETFs of its own, through Exchange Traded Concepts, and raising USD400 million.
Mies explains that the firm focuses on high and ultra-high net worth individuals and was originally a Morgan Stanley wealth department that became an independent firm in 2016. Mies had joined the firm in 2009 and since independence has seen the team increase from 13 to 22.
“The amount of resource we dedicate to our internal investment management team differentiates us,” he says. “We build diversified portfolios for clients but also to run four equity based active strategies in separately managed accounts.”
It was these strategies with up to over 200 individual securities which pushed the firm in the direction of an ETF.
“A year and a half ago, a client said ‘this is kind of cumbersome – can you simplify it?’, so we figured that we could simplify it and deliver this strategy to our clients in a more streamlined package,” Mies says.
The result is the four ETF launches: Low Beta Equity Strategy ETF (SIXL); Mega Cap Equity ETF (SIXA); Small Cap Equity ETF (SIXS) and Hedged Equity-Index Option Strategy ETF (SIXH).
“The process was entirely driven by our existing clients, wanting to provide to them with a simpler way to invest with the added tax advantage of an ETF.”
In the US, an ETF working through the creation and redemption process to maintain the portfolio, through the heartbeat trading process, raises no CGT on the underlying transactions, giving the structure an expected tax advantage over other pooled investments.
“Our mandate is to be extremely tax efficient with as little trading as possible and as little cost as possible – we might make just monthly changes and larger changes every quarter and pretty significant ones semi-annually. The USD400 million raised came from our existing clients who converted those assets from managed accounts to ETFs largely because of the greater simplification, lower costs and the tax advantage,” Mies says.
“It would have meant hundreds of pieces of paperwork in the managed account format, and combined with the tax savings and benefits, well over 90 per cent of our eligible account holders converted to the ETFs.”
The biggest challenge to Mies’ clients at the moment is seeking stable income.
“There are not many options available,” he says, commenting that high dividend strategies exist but on a short term three- to six-month period, and there could a period of high volatility.
“There is a lot going on here in the States right now with the election, the protests and activism and the shutdown due to the virus. There is a lot of confusion for investors when they look at the news, but also see the stock market is at an all-time high.
“We believe the answer to that lies in the fact that the government has been so aggressive with monetary policy and the amount of liquidity that the Fed has provided and the fiscal policies of sending cash to individuals to support them through the virus – all of this has combined to stimulate the financial markets.”
6 Meridian’s next steps into ETFs is researching dividends, income and growth equity products.
