F-Squared and Smartleaf link up for overlay SMAs

FWR Staff

23 January 2008

Alpha-Cycle accounts convert fund indexes to individual-security portfolios. F-Squared Investments, a manager of indexed investments that blend active and passive approaches, and overlay-management technology provider Smartleaf have teamed up create separately managed accounts based on F-Squared's mutual-fund indexes.

SMAs are customizable portfolios made up of individual securities.

Reverse engineering

But Wellesley, Mass.-based F-Squared says it can convert its indexes into "a highly correlated tracking portfolio of individual stocks" using its "proprietary replication technology." These portfolios are designed to provide more consistent returns with reduced likelihood of significant underperformance.

And F-Squared says its new AlphaCycle SMAs are available for a third to a half the cost of traditional SMA manager fees, that is from 26 basis points to 40 basis points -- which implies a fee to the end investor of between 1.25% and 1.50% of account assets.

F-Squared's 18 ActiFindexes track actively managed mutual funds with histories "of delivering superior, sustainable investment performance," according to an F-Squared press release.

ActiFindexes -- formulated and supervised by investment consultants Kanon Bloch Carre, Klein Decisions and Mesirow Financial -- are supposed to integrate "multi-manager diversification, and a strict sell discipline" with the result that advisors and retail investors get "the consistency, discipline and performance that has typically been reserved for the institutional investment community."

F-Squared will manage its AlphaCycle models using Cambridge, mass.-based Smartleaf's overlay technology. That allows for security-level customization and active tax management.

At a higher fee, the models can be blended to form Smartleaf-enabled unified managed accounts, according to F-Squared.

"In a real sense, we have created a true virtual investment vehicle," says F-Squared's CEO Howard Present. We are excited about what this brings to the advisor market." -FWR

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