Long-Term Performance Of Different Types Of Managed Funds

Canstar rates several categories of managed funds. Which profile will different investors fit into, and how does each fund type perform?

What types of managed funds are there?

Canstar researches and assesses managed funds in several different categories:

• Multi-Sector Aggressive
• Multi-Sector Balanced
• Multi-Sector Growth
• Multi-Sector Moderate
• Australian Cash & Fixed Interest
• Global Bonds
• Australian Shares – Large Cap
• Australian Shares – Mid/Small Cap
• Global Shares – Large Cap

If you want to know how each type of fund performs, you’re new to investing, or you’re not sure whether your current strategy suits your investor profile, read on. We look at what each category or type of managed fund means, and how each type of fund has performed.

In 2017, Canstar has once again researched and rated managed funds available to Australian investors. Our research included 165 products this year.

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Historical returns on the different types of managed funds

The table below shows the 10-year average annual returns across the different types of multi-sector funds. This is based only on the funds assessed for Canstar’s 2017 star ratings; not all managed funds in the market are compared.

Canstar endeavours to compare as many products as practically possible; however, to ensure that we are comparing like-for-like, only products that meet certain eligibility criteria are included. Criteria for the Managed Fund Star Ratings include that they are available for purchase directly by an individual investor, they do no not have a fee for an initial deposit, they have a minimum FUM of $50m, and they have a minimum 10 years of performance history. The full details of eligibility criteria are outlined in the Managed Fund Star Ratings Methodology, available here.

Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice.

If you look at any specific product, consider the product disclosure statement and seek advice from a licensed financial adviser before making an investment decision. See our detailed disclosure. Click here for additional important notes and liability disclaimer.

In summary, the higher the investment risk you choose, the higher the chance of both higher potential gains and greater potential losses.

It’s certainly true that Multi-Sector Aggressive funds have years where they have a higher annual return, but that’s not the whole story. The table below detailing year-on-year returns for Multi-Sector Aggressive funds shows that some years, you can lose far more than you gained in other years.

Meanwhile, a Multi-Sector Moderate fund, while aiming to provide  more stability around a predictable return, is unlikely to ever give you year-on-year returns as high (or as low) as the Multi-Sector Aggressive fund at its best and worst.

Let’s look at that in a little more detail.

Multi-Sector Aggressive

What: The Multi-Sector Aggressive funds we have rated have a benchmark allocation of investing 80% or more in growth assets such as shares and property, with limited investment in cash and fixed investment assets.

Who: Aimed at investors with a high risk appetite.

Performance: Aiming for high long-term returns, with the risk of significant volatility in investment values possible on a year-by-year basis.

Multi-Sector Growth

What: The Multi-Sector Growth funds assessed have a benchmark allocation of investing 61-80% in growth assets such as shares and property. This means they limit their investment in cash and fixed investment assets.

Who: Aimed at investors who are willing to accept significant levels of risk over time, such as those who are in the build-up of their career.

Performance: Aiming for high long-term returns, with major falls or rises in investment values possible on a year-by-year basis.

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Multi-Sector Balanced

What: The Multi-Sector Balanced funds assessed by Canstar have a benchmark allocation of investing 41-60% in growth assets such as shares and property. This means they invest fairly equally in low risk assets like cash and fixed investments and higher risk growth assets like shares and property.

Who: Aimed at medium risk investors who are willing to accept a moderate level of risk over time, such as those who are in the middle of their career.

Performance: Aiming for significant long-term returns, with falls or rises in investment values possible on a year-by-year basis.

Multi-Sector Moderate

What: The Multi-Sector Moderate funds assessed by Canstar have a benchmark allocation of investing 21-40% in growth assets such as shares and property. This means they invest at least 60% in cash and fixed interest products.

Who: Aimed at low risk investors who do not want the risk of significant volatility on a year-by-year basis, such as those who are nearing retirement.

Performance: Aiming for predictable long-term returns, with falls or rises in investment values less likely on a year-by-year basis.

Identifying the right fund type for you

Choosing the right fund for you has a lot to do with identifying your appetite for risk, which tends to shift progressively as you walk through the different stages of life. As you find your appetite for risk changing, don’t forget to change your investment option accordingly.

Canstar can help there. We recognise that appetite for risk may vary depending on the consumer, so our Managed Fund Star Ratings methodology has aligned the profiles to the fund type by growth asset allocation. Through our review, we’ve identified the managed funds that provide outstanding value across the different profiles.

We consider a number of other aspects of managed funds in addition to long-term performance, such as the availability of features (e.g. a regular investment plan, regular withdrawal plan, channels to access your investment portfolio, conditions of investment such as the minimum initial investment or minimum additional investments); and the fees charged to invest in the fund.

Read our latest star ratings to find out which funds ranked well or poorly in terms of performance, features, and fees:

Managed Fund Star Ratings - Canstar

Or compare managed funds on our website:

Compare Managed Funds

Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. If you look at any specific product, consider the product disclosure statement and seek advice from a licensed financial adviser before making an investment decision. See our detailed disclosure. Click here for additional important notes and liability disclaimer.

Canstar is an information provider and in giving you product information and is not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please refer to Canstar’s Financial Services and Credit Guide (FSCG) for more information, and read our detailed disclosure, important notes, and additional information.