SMAs, ETFs continue to be popular with retail buyers: Conference panel

Investors are turning to separately managed accounts and exchange-traded funds — both of which have grown significantly over the past several years — as alternative investment strategies amid a changing retail landscape,

Processing Content

Muni SMAs now hold an estimated $1.3 trillion in assets under management across around 180 managers, per J.P. Morgan. Meanwhile, ETF muni holdings are at $163.1 billion, up 22.4% year-over-year, as of the third quarter of 2025, according to the latest Federal Reserve data.

“The separately managed account business is booming and that’s kind of a lot of the story of what’s been going on. ETFs are part of it, too,” said Dan Solender, partner and director at Lord, Abbett & Co. at The Bond Buyer’s National Outlook conference Wednesday.

Part of the appeal of SMAs is customization, he noted.

Market participants want to use SMAs for certain purposes, such as selling to realize tax losses, Solender said.

Currently, there’s political discontent nationwide. Investors “want us to be able to customize and exclude certain cities or states or sectors. You have to be able to do all this,” he said.

ETFs — a cost-effective product that offers instant diversification — were born out of the ability to trade equities, said Cooper Howard, director of fixed income strategy at Charles Schwab.

“It’s an equity-like product, but we’re putting municipal bonds under that wrapper, so they’re familiar with ‘I can put a stop order on it, I can put a limit order on it. I can quickly get in, quickly get out,’ treating it like a product that they can easily move in and out and create that liquidity,” he said.

Technology also plays a role, as SMAs and ETFs would not be able to grow at this exponential rate without it, panelists said.

“SMAs go hand in hand with the rise in technological advancements because you can’t manage SMAs at scale. You can’t even manage ETFs at scale without those advancements,” said Ed Paulinski, managing director at Goldman Sachs.

Electronic trading continues its “slow, steady grind upward, reaching 18.7% of total volume in 2025,” inching up 0.6 percentage points from 2024, according to a report from Coalition Greenwich.

“Broad adoption of muni SMAs required a more automated investing process — one that is becoming increasingly automated as SMA AUM continues to grow,” while “the ETF-to-cash ratio … grew in 2025 for the first time in two years, suggesting that appetite for the product from traders and investors is robust,” the report said.

Some investors, particularly baby boomers who are retiring, have begun shifting their allocations toward fixed income, Howard said.

“So long as we see flows, whether it’s ETFs, mutual funds, individual bonds, SMAs … investors are beginning to age out and shifting their portfolio to municipal conservative fixed income options, and it’s easier to invest in those because of SMA, ETFs, the rise of technology,” he said.

Flows into SMAs and ETFs, which are lower-duration products than traditional mutual funds, may affect the steepness of the muni yield curve, which is currently steeper than historical averages. So unless flows “materially change,” the muni yield curve will remain steep, Paulinski said.

That, though, works well for investors if they can take advantage of it, he said.

And as the market evolved, rate strategies that look across asset classes are becoming a bigger part of client portfolios, Paulinski said.

“We have a mandate that will look across municipals, Treasuries and corporates all in one portfolio for clients and investors, and client’s mindsets are actually changing a little bit,” he said.

Many clients dislike paying taxes, so there is a growing client base seeking the best after-tax yield and value in their portfolios, regardless of asset class, Paulinski said.

Therefore, that “sort of locked-in” retail buyer is starting to look across fixed income more broadly, rather than being so “myopic” on munis, he said.