If you have beenlooking for a fixed income investment that gives you control, tax advantages, and professional management, a municipal bond separately managed account (SMA) deserves your attention. SMAs have grown from a niche product for large institutions into one of the fastest growing vehicles in fixed income investing. Municipal fixed income assets held in SMAs grew from $100 billion in2008 to over $718 billion by 2023. In our view, that growth happened for good reason.
This guide explains what a municipal bond SMA is, how it compares to mutual funds and ETFs, and why firms like One Oak Capital Management,LLC have built their business around this approach.
A municipal bond SMA is an investment account where you own individual municipal bonds directly. A professional portfolio manager selects, purchases, and manages those bonds on your behalf. You are not buying shares of a pooled fund. You own each bond in your account outright.
This structure gives you full transparency into what you hold, how each bond performs, and what your cost basis is at any given time. Your portfolio manager builds and manages the account based on your specific financial goals, tax situation, and risk tolerance.
One Oak Capital Management, LLC, a New York based SEC registered investment adviser founded in 2013, manages several municipal bond SMA strategies. The firm's investment team brings decades of fixed income experience to portfolio construction, credit analysis, and risk management for each client account.
Mutual funds and ETFs pool money from many investors into a single portfolio. You own shares of the fund, not the underlying bonds. An SMA works differently in several important ways.
With a mutual fund or ETF, you have no say in which bonds the fund holds. You cannot exclude specific states, adjust your duration target, or request tax loss harvesting on individual positions. The fund manager makes those decisions for the entire pool of investors at once.
An SMA gives you direct ownership. That means your portfolio manager can sell a specific bond at a loss to offset gains elsewhere in your portfolio. This level of tax management is impossible inside a pooled fund structure.
Mutual funds also face redemption pressure. When other investors sell their shares during periods of market stress, the fund manager may need to liquidate holdings to raise cash. That forced selling can hurt your returns even if you planned to stay invested. SMAs do not have this problem. Your account stands on its own. Your portfolio manager can hold positions through volatility or take advantage of mispriced bonds when others are forced to sell.
One Oak Capital Management, LLC uses a versatile SMA approach that grants investors transparency, liquidity, and control over their portfolios. The firm reviews your fixed income assets in the context of your overall investment portfolio, factoring in profit and loss opportunities, current relative values, and interest rate risk.
It is our view that the advantage of a municipal bond SMA comes down to four areas: tax efficiency, customization, transparency, and professional management.
Tax efficiency. Interest on municipal bonds is generally exempt from federal income tax. It may also be exempt from state and local taxes depending on where you live and where the bonds are issued. Beyond the income itself, an SMA allows your portfolio manager to harvest tax losses throughout the year by selling individual bonds at a loss to offset capital gains in other parts of your portfolio. One Oak Capital Management, LLC has executed tax harvesting trades across its Enhanced Municipal and Enhanced Taxable Municipal portfolios.
(Disclaimer: Any discussion of tax matters contained within this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or applicable state, local, or national tax law provisions; or (ii) promoting, marketing, or recommending to another party any transaction or tax-related matter addressed herein. Tax laws and regulations are complex and subject to change. The impact of a particular tax strategy will vary based on an individual investor's financial situation, investment portfolio, tax bracket, and other factors. Investors must consult with qualified tax professionals regarding their specific circumstances before implementing any tax strategy discussed in these materials.)
Customization. Your SMA can be tailored to your state tax requirements, desired duration, income needs, and credit quality preferences. This is a level of personalization that pooled vehicles generally cannot offer. One Oak Capital Management, LLC offers portfolios that can be tailored to individual state requirements, desired duration, and income, ensuring full customization for each client.
Transparency. You see every bond in your account. You know the credit rating, maturity date, coupon rate, and current market value of each holding. This visibility helps you and your advisor make informed decisions.
Professional management. A dedicated team of fixed income specialists manages your portfolio. At One Oak Capital Management, LLC, CEO and Chief Investment Officer Stephen DiTursi leads a team with over 40 years of industry experience. Senior Portfolio Manager Neil Crabb oversees the firm's municipal research process and trading systems. Portfolio Manager Keith Cronin manages corporate bond selections and hedging. The firm uses Bloomberg, Fabkom, and research from multiple sell side firms to support its disciplined risk management framework.
One Oak Capital Management, LLC applies an institutional grade approach to SMA portfolio construction. The firm offers three distinct SMA strategies to address different investor needs.
The Enhanced Municipal Portfolio is a laddered, actively managed strategy built from a diversified portfolio of high credit quality bonds. It targets investors seeking tax advantaged income and total return. This strategy has earned a five star Morningstar Rating and received Zephyr's PSN Top Gun award for a Top 10 return in the PSN Municipal Universe.
The Enhanced Taxable Municipal Portfolio adds exposure to corporate bonds alongside municipal holdings. It seeks to deliver a combination of attractive taxable income and total return. This strategy has also received multiple PSN Top Gun awards across various time periods.
(Disclaimer: References made to awards/rankings are not an endorsement by any third party to invest with One Oak and are not indicative of future performance. Investors should not rely on awards/rankings for any purpose and should conduct their own review prior to investing. Zephyr/PSN is an asset and wealth management software marketed by Informa (LSE: INF). PSN is a database of Separately Managed Accounts managed by Zephyr. One Oak does not compensate Zephyr for inclusion in the PSN database, nor does it compensate Zephyr for consideration for, or awarding of, the PSN Top Gun designation.)
The Enhanced Short Duration Municipal Portfolio focuses on short duration, high credit quality bonds for investors who want lower volatility and tax advantaged yields.
Each portfolio follows a structured process. The investment team communicates with clients to understand their objectives, evaluates their current fixed income holdings, assesses risk factors, reviews relative value opportunities, structures the portfolio, and allocates capital. This process allows One Oak Capital Management, LLC to build portfolios that reflect each investor's specific circumstances rather than applying a generic model.
The firm's risk management framework monitors key risk factors across every portfolio: regulatory risk, yield curve shifts, sector concentration, credit quality, interest rate sensitivity, and liquidity. This disciplined approach helps the team structure efficient portfolios for various economic environments and market cycles.
A municipal bond SMA is a strong fit if you fall into one or more of these categories.
You are in a high federal or state income tax bracket and want to keep more of your investment income. The tax exempt nature of municipal bond interest becomes more valuable as your tax rate increases.
You want control over what you own. If you prefer to know exactly which bonds are in your portfolio, and you want the ability to customize around state preferences, credit quality, and maturity targets, an SMA delivers that.
You have a substantial fixed income allocation. SMAs work best when you have enough capital to build a diversified portfolio of individual bonds. One Oak Capital Management, LLC is available through platforms like Envestnet and custodians including Charles Schwab, Fidelity, and Pershing.
You value active management and risk oversight. If you want a team of experienced fixed income professionals actively monitoring your portfolio for credit changes, interest rate shifts, and relative value opportunities, an SMA provides that service.
No investment is without risk, and municipal bond SMAs are no exception. You should understand several factors before committing capital.
Interest rate risk is present in any fixed income portfolio. When interest rates rise, bond prices fall. The degree of that sensitivity depends on the duration of your holdings. One Oak Capital Management, LLC actively manages duration as one of its risk assessment factors.
Credit risk exists with every bond issuer. If an issuer's financial condition deteriorates, the value of that bond could decline. Diversification across sectors and issuers helps manage this risk, and it is a core part of how One Oak Capital Management, LLC constructs portfolios.
Liquidity risk matters in the municipal bond market. Not every bond trades frequently, and selling a thinly traded bond on short notice could mean accepting a lower price. The firm analyzes the marketability of each security for its ability to offer ongoing liquidity.
Regulatory risk can affect bond values. Changes in tax law or government policy could reduce the tax advantages of municipal bonds or impact specific sectors.
Performance in an SMA can also differ from a benchmark index. Customization and individual security selection mean your results will not perfectly mirror any index. This is a tradeoff that comes with personalization.
If you want to explore whether a municipal bond SMA is right for your portfolio, the first step is a conversation with a qualified advisor. One Oak Capital Management, LLC offers a portfolio risk assessment to evaluate your current sensitivity to interest rate and credit risks. You can also visit their Market Insights page for quarterly commentary on fixed income markets.
To learn more about the firm's approach and team, visit One Oak Capital Management, LLC or contact the team directly.
