Managed funds, also known as investment funds or mutual funds, are a popular investment option for individuals looking to diversify their portfolio and access professional fund management expertise.
We explore below the definition of managed funds, how they work, the various types, their features, risks, how to compare them, and some frequently asked questions.
Managed funds pool money from multiple investors to invest in a diversified portfolio of single or multiple asset classes such as stocks, real estate, fixed income, cash, and/or other securities. They are managed by professional fund managers who make asset decisions based on the fund's strategy. This allows individual investors to access a wide range of investments and expertise that may otherwise be difficult or expensive to gain exposure to.
Managed funds operate by allowing many investors to pool their capital in exchange for 'units' in a diversified set of investment assets. Each investor in the fund owns these 'units', which represent their share of the fund's assets.Â
Professional fund managers make investment decisions on behalf of the fund, including selecting, buying, and selling assets in return for management and performance fees.Â
The net asset value (NAV) of the fund, which is the total value of its assets minus any liabilities, is divided by the number of units issued to determine the price of each unit. As the fund’s assets generate positive or negative returns, the NAV, and consequently the unit price, can fluctuate. Investors earn their returns through the fund's NAV changes as well as the income generated by the fund.
Australians seeking a diversified investment approach, may consider managed funds for the following reasons:Â
While there are many reasons for considering managed funds, it's also essential for Australian investors to be aware of the potential pitfalls...Â
There are many types of managed funds available to investors in Australia, including:
Primarily invest in shares. For example, a private equity fund might focus on blue-chip companies like Telstra or Woolworths.
Generally invest in Australian government bonds, bank bills or corporate bonds. For example, a bond fund might hold bonds issued by the New South Wales government or major corporations like ANZ.
Invest in commercial or residential property assets, or property development projects.
Invest in a mix of of securities including shares, fixed interest, property and cash, thereby offering a balance between risk and return.
Focus on specific investment strategies, such as ethical or sustainable investing.
Aim to replicate the performance of a specific market index – typically within shares or bonds.
Target specific sectors such as mining or finance. An investor might choose a fund focusing on the tech sector, with holdings in companies like Atlassian.
Managed funds play a pivotal role, for Australian investors building a diversified investment portfolio:
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Sometimes called mixed-asset funds, diversified funds spread their investments across asset classes such as shares, property, cash, fixed interest, bonds and bank bills. Managers often market diversified funds based on the associated risk level, with investment strategies ranging from high-risk growth funds to low-risk cash-based funds.Â
There are 3 main diversified fund categories based on expected risk and return:
A growth-focused diversified fund will usually invest around 85% of the fund's capital in shares or property, leaving the remaining 15% for cash or fixed interest. These funds are considered high-risk.
A balanced diversified fund often invests about 70% of available capital into shares and property, with the remaining going into cash or fixed interest. Although they are less volatile than growth funds, balanced funds are still considered higher risk.
A conservative diversified fund typically invests about 30% of capital into property and shares, with the remainder going into cash or fixed interest. These funds are considered lower risk, although negative returns and loss of capital are still possible.
An unlisted managed fund is a type of investment fund that is not publicly traded on a stock exchange. One of the main advantages of unlisted managed funds is that they offer a high degree of customisation and flexibility, allowing investment managers to pursue specific investment strategies or to invest in specific types of assets that may not be available through publicly traded funds. However, unlisted managed funds can also be more complex and less transparent than publicly traded funds, and they typically have higher minimum investment requirements and higher fees.
Navigating the vast landscape of managed funds in Australia can be daunting. To compare managed funds, investors should consider various factors including:
It's advisable to review the fund's prospectus, which provides detailed information about its objectives, risks, and expenses, etc before making an investment decision.
 Investing in managed funds can be done through various channels. Here are the primary ways to invest in managed funds:Â
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Many fund managers allow investors to invest directly through them. This typically involves visiting the fund manager's website, downloading an application form, and then submitting it along with the required identification documents and your initial investment.
A financial advisor can provide advice on which managed fund suits your investment goals and risk profile. Once you've made a decision, the advisor can handle the application process on your behalf.
These platforms offer a range of investment options, including various managed funds. They allow you to consolidate your investments in one place, making it easier to monitor and manage your portfolio.
Some managed funds are listed and can be bought and sold like shares on a security exchange. You can use a stockbroker or an online brokerage platform to invest in these listed managed funds.
Many superannuation funds in Australia offer a range of managed fund options as part of their investment menu. You can allocate a portion of your superannuation to these managed funds.
Managed funds are an effective way for investors to access professional fund management and diversify their portfolios. By understanding the different types of funds, their features and risks, and how to compare them, investors can make informed decisions and choose funds that align with their investment goals. Whether investing directly or through intermediaries, managed funds provide individuals with a convenient and potentially rewarding investment option.Â
The average return of managed funds can vary significantly depending on the fund's investment strategy, market conditions, and the skill of the fund manager. It is important to note that past performance is not indicative of future results. Investors should review a fund's historical performance and consider it alongside other investment factors when making investment decisions.Â
Most, but not all, managed funds offer daily, weekly, or monthly liquidity, meaning investors can redeem their investment during those periods. Â
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Some funds may have specific redemption periods or notice periods, but this is not always the case. For example, some property funds are illiquid and cannot be redeemed at short notice. Prior to investing, investors should carefully read a fund’s offer document and understand the redemption terms.Â
Managed funds may be used for long-term investing as they offer diversification and professional fund management. However, investors should carefully consider their investment goals and risk tolerance before making any investment decisions.Â
Generally, Australian investors are subject to capital gains tax when they sell their fund units and may also be liable for taxes on any income distributions received from the fund.Â
Managed funds typically charge fees to cover the costs of fund management, administration, and other expenses. Common fees include:Â
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Management Expense Ratio (MER): This annual fee, expressed as a percentage, covers the fund's management costs. For example, a fund with an MER of 1% would charge AUD 10 annually on a AUD 1,000 investment.Â
Entry and Exit Fees: Some funds charge fees when you invest or withdraw money. However, these are becoming less common in the Australian market.Â
Performance Fees: Some Australian fund managers charge a fee if the fund's performance exceeds a specified benchmark, like the ASX 200.Â
Ongoing Fees: These cover the day-to-day expenses of running the fund, such as audit fees or operational costs.Â
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It's important to carefully review a fund's fee structure and consider the impact on future investment returns.Â
Most managed funds allow investors to switch their investment between different funds within the same fund family or management company. Â
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Some funds may charge switching fees or have specific requirements for switching, so it's essential to review the fund's terms and conditions.Â
Managed funds can be suitable for retirement planning as they offer the potential for long-term growth and diversification. Â
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However, it's important to consider managed funds in the context of an overall financial plan aimed at achieving your financial goals.Â
This article contains information of a general nature only, and should not be regarded as advice, either general or personal. Anybody considering investing in managed funds should seek professional financial and legal advice prior to making investment decisions.Â
An investment fund that directs its capital into a larger master fund. This setup, referred to as a “master-feeder” structure, typically features a central master fund that serves as the primary investment vehicle, enabling multiple feeder funds to consolidate their capital and leverage economies of scale. Â
An unlisted managed fund approved for settlement according to Australian Securities Exchange (ASX) Operating Rules via the ASX's mFund Settlement Service. It functions similarly to other unlisted managed funds but allows investors to purchase and sell units using their standard brokerage services for ASX-listed company shares.
The Fund is highly focussed on investing in long-term winners in attractive transforming markets when they are undervalued and offer outsized return potential.
The High Yield Fund offers fixed income credit products otherwise not available to retail investors, targeting capital stable higher yielding assets.
The Fund is a long short investment fund investing in developed market equities in Australia and internationally (For Wholesale Investors Only)
Tailor your investment to your individual risk profile, with a range of interest returns and security types.
The Fund invests in small and midcap listed global equities with aims for returns greater than the MSCI All Country World Index SMID Cap unhedged in Australian dollars over rolling 3 year periods after fees.
The Fund aims to deliver consistent, risk-adjusted, absolute returns, uncorrelated with the broader equity market (For Wholesale Investors Only) and other asset classes.
The investment objective of the Fund is to deliver income and capital growth over the long-term by investing in Australian listed equities, exchange traded derivatives and cash assets.
The Fund aims to provide regular income and consistent returns by investing in a diverse range of income generating assets that meet Perpetual’s ESG and values-based criteria (For Wholesale Investors Only).
The Fund employs Contrarius’ valuation-based, contrarian investment philosophy and aims to achieve long-term returns higher than the benchmark, without greater risk of loss.
The Trilogy Industrial Property Trust is designed to provide a competitive and regular income and the opportunity for long-term capital growth.
The CFMG Monthly Income Fund is a pooled credit mortgage fund that provides investors with exposure to competitive returns and the Australian property market, through loans secured by first mortgages over real property.
The Fortlake Sigma Opportunities Fund seeks the most compelling risk-adjusted return opportunities within global fixed income markets.
The Fund aims to provide long-term capital growth through a portfolio of global equities. The team uses a fundamental, bottom-up approach, driven by valuation, building a concentrated, 'best ideas', high conviction global equity portfolio.
The Fund’s objective is to outperform the Small Ordinaries Accumulation Index by focusing on listed shares of smaller companies in Australia and New Zealand.
Share in development profits earning 16% - 23% pa
