What Are Managed Funds?

At the core of a managed fund is a simple idea: pooling resources. Imagine you’re part of a group of people, each with a small pot of money to invest. On your own, your investment options are limited. But when you pool your money together, you have a bigger pot enabling you to explore a broader range of investment opportunities.

Investors put their money into a common pot managed by a professional fund manager or team. They sometimes strategically spread the pooled money across various assets like shares, bonds, property, and even commodities. That’s what happens with managed funds.

The mix of assets depends on the fund’s goal and strategy. Some funds might go for high-risk, high-reward assets like shares to try and grow aggressively. Others might play it safe for steady income, opting for bonds and cash investments.

When you invest in a fund, you buy “units” instead of the assets themselves. Each unit you buy is a slice of the fund’s total portfolio. The unit’s value moves up or down with the total value of the fund’s assets.

Even though the fund manager makes the day-to-day decisions about what assets to buy or sell, you still own your units in the fund. That means you share in the profits if the investments do well—but you’ll also share in any losses if they don’t.

Managed funds and mutual funds are pretty much the same thing; they both involve pooling money from multiple investors, which a professional fund manager then invests. They aim to allow individual investors to tap into diverse portfolios and professional management.

However, what these funds are called often depends on where you are. In Australia, we usually talk about ‘managed funds’, while in the United States, they say ‘mutual funds’. They’re essentially the same, but there are a few differences in practice.

One key difference is how the units are priced. The price of a unit in a managed fund is usually calculated daily based on the fund’s net asset value at the end of the trading day. So, if you decide to buy or sell units in a managed fund, you won’t know the exact price until the following calculation. It’s like ordering a coffee and only finding out how much it costs after you’ve drunk it.

On the other hand, mutual funds in the US also price their units based on the net asset value, but all transactions are only carried out at the end of the trading day. So, everyone who buys or sells units in a mutual fund on the same day gets the same end-of-day price.

Managed funds come in all shapes and sizes, catering to a range of risk appetites and financial goals. Whether you’re after funds that involve active, hands-on management or prefer a more laid-back, set-and-forget approach, there’s likely an option for you.

Actively Managed Funds

The crux of actively managed funds lies in their pursuit of outperformance. The fund managers of these types of funds play an active role in trying to generate returns that outshine a specific benchmark, such as the S&P/ASX 200 in Australia.

Fund managers use a variety of strategies, methods, and analyses to make their investment decisions. They closely monitor market trends, economic data, company fundamentals, and other factors to identify buying and selling opportunities. However, the higher potential returns offered by actively managed funds often come with higher fees.

Passively Managed Funds

Passively managed funds, often called index funds, contrast with their active counterparts by aiming to replicate, rather than beat, a specific market index. An index is a snapshot of a particular financial market segment, such as the S&P/ASX 200. As the fund is not trying to pick winners over losers, there are generally lower fees due to the less intense management requirements. You can read more in our guide to index funds in Australia.

Unlisted Trusts

Unlisted or unlisted managed funds are a unique type of managed fund not listed or traded on a public securities exchange such as the ASX. Instead, they are typically available for investment directly from the fund manager.

You can find balanced or specialised funds within each type of fund.

Specialised Funds: These funds focus on specific sectors or investment strategies. They might zero in on industries like technology or healthcare, regions like emerging markets, sectors such as commercial property or ethical investments that align with certain values. You can consider them laser-focused funds, looking at one part of the investment universe.

Balanced Funds: These are your all-rounders. They aim for a balanced mix of asset types like shares, bonds, and property to spread risk and achieve stable returns.

Investing in managed funds can open up growth, income, and diversification opportunities.

Step 1: Define Your Goals and Risk Tolerance

Start by clarifying your financial objectives and risk comfort level. This understanding will guide you in selecting suitable funds.

Step 2: Research

Managed funds are diverse, each with its strategy, asset allocation, and fee structure. Investigate various funds, keeping an eye on their alignment with your goals and risk appetite.

Step 3: Review the Product Disclosure Statement (PDS)

Each Australian managed fund provides a PDS detailing the fund’s strategy, risks, fees, and more. Ensure you peruse this vital document before investing.

Step 4: Make the Investment

If you’re using an online broker, you’ll need to open an account, search for your selected fund’s ticker, decide how much you wish to invest, and place your order. On the other hand, if investing directly with the fund manager, you’ll typically need to complete an application form and provide identification documents due to the Know Your Customer (KYC) regulations. With your fund chosen, it’s time to invest.

Step 5: Monitor Your Investment

After investing, keep tabs on your fund’s performance. Most fund managers offer regular updates. Investing is typically a long-term journey, so you should view short-term fluctuations in that context.

Australia’s managed funds landscape offers many options. Let’s quickly profile three unique examples: the Vanguard Australian Shares Index Fund, the Macquarie Australian Shares Fund, and the Magellan Global Fund.

Vanguard Australian Shares Index Fund

This passively managed ETF fund tracks the S&P/ASX 300 Index, which includes around 300 of Australia’s largest companies. It offers broad exposure to the Australian equity market and is known for its cost-efficiency.

Macquarie Australian Shares Fund

This actively managed fund aims to outperform the S&P/ASX 200 Accumulation Index over the medium to long term. The fund managers select Australian shares based on company, industry, and economic analyses.

Magellan Global Fund

A distinctly international managed fund, the Magellan Global Fund provides exposure to a handpicked portfolio of top-tier global companies. It offers a chance for geographic diversification but also introduces potential additional risks like currency risk.

These examples offer a snapshot of the diverse managed funds available, catering to varied strategies, risk profiles, and financial objectives. Always research thoroughly and consider professional advice before investing.

Managed funds present several advantages that attract newcomers and experienced investors. Let’s briefly touch on the key benefits:

Diversification: With managed funds, you can spread your investments across various asset classes, sectors, and regions, and they can help to reduce risk by not putting all your eggs in one basket. This diversification works like an all-you-can-eat buffet, giving you a taste of everything instead of risking it all on one dish.

Professional Management: A professional fund manager makes investment decisions in a managed fund. They use their skills, experience, and resources to navigate the investment world on your behalf. You get to sit back, relax, and let the pros handle the heavy lifting.

Accessible and Easy: Managed funds are typically easy to buy into, often with low minimum investment amounts. They offer a straightforward entry ticket into a wide array of investments, which might otherwise be difficult or costly to access as an individual investor.

These attractive features make managed funds a compelling choice. However, they have potential downsides.

Featured Partner

1

eToro

Start Trading

On eToro’s Website

All your investments in one place

Join 30M users and explore stocks and ETFs

AFSL 491139. Capital at risk. See PDS and TMD

Despite their benefits, managed funds can have some pitfalls. Here are a few key considerations:

Costs and Fees: Managed funds charge fees for their services, which can eat into your returns over time. It’s important to know what you’re paying for, and to ensure the fees are worth the potential returns.

No Guarantee of Returns: Like all investments, managed funds can lose and gain value. Diversification helps manage risk but doesn’t guarantee a profit or protect against a loss. Investments can go down as well as up.

Lack of Control: When you invest in a managed fund, you trust the fund manager to make investment decisions on your behalf. While there are positives to this as well, ultimately you have less control over where your money is invested.

Are managed funds right for you? Any investment decision depends on your financial goals, risk tolerance, and personal circumstances. If you’re considering investing in managed funds, it might be worth speaking to a financial advisor or doing further research to ensure it’s a good fit for you.

Remember, while managed funds can offer an accessible route into the investing world, they are not without their risks and costs. It’s important to understand what you’re investing in and keep an eye on your investments to ensure they work hard for you.

The advice and information provided by ForbesAdvisor is general in nature and is not intended to replace independent financial advice. ForbesAdvisor encourages readers to seek expert advice in relation to their own financial decisions and investments.