What Are Managed Funds?

 

What should you look for in a managed fund? CANSTAR provides industry insights into managed funds and case studies on the needs of investors.

What is a managed fund?

A managed fund involves pooling together money from different investors into one fund that is invested and controlled by a professional investment manager. Funds differ in the types of assets you can invest in. You can invest in a single asset class such as shares or fixed interest, or a multi-sector option such as a Growth or Balanced fund, which contain a mix of different asset classes.

When you invest in a managed fund, you are allocated a number of ‘units’. The value of each unit is referred to as the unit price, which is calculated on a daily basis reflecting the value of the fund. If the value of the fund increases, the unit price will rise. Conversely if the value of the fund decreases, the unit price will decline.

Managed funds can be either “listed” and tradeable on the share market, or “unlisted” and bought and sold directly through a fund manager. If the fund is “listed”, the value of the shares is dictated by supply and demand, which is in turn dictated by performance and valuation. This is the same as other listed shares.

If the fund is “unlisted”, new units in managed funds that are still open for investment are issued in line with demand, with a product disclosure statement (PDS). Unlisted funds are valued at least weekly by the fund manager, who divides the net value of the assets on the day by the number of issued units.

Benefits of investing in managed funds

Managed funds have several benefits over other types of investments:

Expert fund manager Expert fund manager takes care of the investing – a low-stress choice for investors
invest in multiple asset classes at once Allows diversification, for example, to invest in multiple asset classes at once – or within an asset class to invest across different companies, industries, countries, and management styles
Cost-effective investing Cost-effective, often with low minimum requirements on how much to invest

First, they can be a low-stress choice for investors who want an expert to conduct in-depth research of the market and investment options for them. Money is managed by a professional fund manager who has experience and access to information, research, and strong investment processes not readily available to individual investors.

On the other hand, investors do not have a direct say in where their money is invested by the fund manager. However, they can choose which level of investment risk the managed fund undertakes for them, and there are thousands of managed fund products available to choose from.

Secondly, managed funds make it easy for investors to diversify their portfolio, with access to invest in a wide range of different asset classes, companies, industries, sectors, and countries. Pooling money with other investors allows you to access investments that are not normally affordable to you as an individual investor. Investors buy shares in the managed fund and the managed fund buys shares in different stocks.

Using shares as an example, an investor with $10,000 could realistically only buy one or two stocks directly in a cost-effective manner. By pooling their money in a managed fund, however, they can potentially gain access to twenty or more stocks. Ownership of these direct stocks is held by the managed fund and the investor owns a number of “shares” or “units” in the managed fund.

Thirdly, many managed funds have low minimum requirements on how much you need to invest.

Fourthly, you can also sign up for a regular investment plan or ‘regular savings plan’ with many managed funds. A regular investment plan means you can add additional money to your investment in the managed fund at regular intervals. This can be a convenient way to gradually build a substantial investment portfolio.

Managed investments cover a variety of asset classes including:

  1. Cash management trusts
  2. Property trusts
  3. Australian shares
  4. Fixed interest investments
  5. International shares
  6. Agribusiness schemes
  7. Film schemes
  8. Timeshare schemes
  9. Mortgage schemes

We explain each of these investment options in more detail below.

Types of managed funds

There are many asset classes a managed investment scheme can invest in. We discuss what each asset class means below, and which asset classes have performed the best long-term.

Some managed funds are multi-sector, meaning that they invest in a selection of investments from more than one asset class. Here at CANSTAR, we research and rate several types of managed funds:

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

Another option is that within the usual asset classes, a managed fund may focus on a specific category within an asset class. For example, an Australian shares-related managed fund might be any of the following:

  • Australian Shares – Large Cap
  • Australian Shares – Mid/Small Cap
  • Australian Share Index Fund
  • Australian Income Shares

Here’s what some of the more common asset classes mean:

1. Cash management trusts

Cash management trusts are a managed investment where cash securities are the main asset. The pooled money is typically invested in short-term (usually 3 months or less) cash securities such as bills of exchange, promissory notes, and other professional money market instruments.

These trusts are a reasonably low risk investment product, with little capital gains.

2. Property trusts

As the name suggests, property trusts consist of pooled money that is invested in a range of property types, including residential and industrial properties, hotels, and even shopping centres.

Units in a property trust can be traded on the stock exchange, and the value of the units increases and decreases over time.

3. Australian equity (share) trusts

Australian equity trusts are a type of managed fund that invests in Australian shares.

Shares are more volatile, so this type of managed investment is quite risky – but it has a potential for higher returns than others.  Equity trusts also utilise derivative instruments such as options contracts to hedge (protect yourself from) risk.

4. International equity trusts

This is a type of managed fund that invests only in international shares from all over the world.

Shares are more volatile, so this type of managed investment is quite risky – but it has a potential for higher returns than others.  Equity trusts may also utilise derivative instruments such as options contracts to hedge (protect yourself from) risk.

5. Fixed interest investments

Fixed interest investments are usually issued to raise funds for corporations, the government, and financial institutions such as banks. Fixed interest investments can include bonds such as corporate bonds, government bonds, and capital notes.

6. Agricultural schemes

Also known as agribusiness schemes, this managed investment uses pooled money to invest in farming, livestock, or forestry businesses.

Agricultural schemes can be risky because your investments could literally be wiped out by natural disasters and unpredictable weather patterns. They are also a more long-term type of investment, because on-selling your portion can be difficult.

According to the ATO, you can claim tax deductions for the cost of investing in a forestry managed investment scheme if certain conditions are met and the scheme has an official ATO product ruling.

7. Film schemes

Film schemes involve the use of the pooled funds to go towards a (you guessed it) movie, in the hopes that the movie turns a profit and makes returns for all investors in the scheme. Such profit and return is not guaranteed, however.

According to the ATO, you can claim tax deductions for the cost of investing in a film scheme for Australian films if certain conditions are met.

Film schemes often end up in the news, particularly in the UK, over its supposed uses as a tax-avoidance vehicle by celebrities. This is because film schemes can, like agricultural schemes, offer tax deductions as a reward for supporting the industry.

8. Timeshare schemes

You might know people who own the right to use a holiday house for a set period of time (usually a couple of weeks) every year. This is a timeshare scheme, where people put in money along with other investors to share a property and divide the use time according to each person?s level of ownership.

This is another long-term type of managed investment that can be difficult to sell. People don?t usually buy timeshares seeking returns; they mainly purchase them for the leisure benefits.

9. Mortgage schemes

Mortgage schemes use pooled money to lend money to many different borrowers who are buying properties of all types.

The risk level of these schemes depends on the quality of the borrowers and their likelihood to default. Returns from this investment typically come in the form of quarterly or half-yearly distributions.

Compare Managed Funds

Who offers managed funds?

The managed fund providers that Canstar researched and rated in 2017 are:

  1. Aberdeen Asset Management Ltd
  2. Advance Asset Management Limited
  3. AMP Capital Funds Management Ltd
  4. Antares Capital Partners Ltd
  5. Ausbil Investment Management Limited
  6. Australian Ethical Investment Ltd
  7. Australian Unity Property Limited
  8. BT Funds Management Ltd
  9. BT Funds Management No.2 Limited
  10. Colonial First State Investments Limited
  11. Copia Investment Partners Ltd
  12. Equity Trustees Ltd
  13. Fidante Partners Limited
  14. Ironbark Asset Mgmt (Fund Services) Ltd
  15. Lazard Asset Management Pacific Co
  16. Macquarie Investment Management Aus Ltd.
  17. Maple-Brown Abbott Limited
  18. MLC Investments Limited
  19. Morningstar Investment Management Australia Limite
  20. Nikko Asset Management Australia Limited
  21. Perpetual Investment Management Ltd
  22. Peters MacGregor Capital Management
  23. Platinum Investment Management Ltd
  24. Prime Value Asset Management
  25. Russell Investment Management Limited
  26. Sandhurst Trustees Limited
  27. UBS Asset Management (Australia) Ltd
  28. Vanguard Investments Australia Ltd
  29. Westpac Financial Services Limited
  30. Zurich Investment Management Limited

The question is, how do investors choose which managed fund to trust with growing their wealth? Canstar’s star ratings of managed funds have been designed to help everyday investors compare managed funds:

Here at CANSTAR, we’ve done the hard work for you by researching and rating managed funds available on the market in Australia. All you have to do is compare your options and choose the managed fund that provides the best value for your situation:

Compare Managed Funds


To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR Research Pty Ltd ABN 29 114 422 909 AFSL and ACL 437917(“CANSTAR”) and does not take into account your individual investment objectives, financial circumstances or needs.   Information provided on and available in this document does not constitute financial, taxation or other professional advice and should not be relied upon as such.  CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. See our Financial Services Guide and Credit Guide at
http://www.canstar.com.au/canstar-research-fsg/

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.

The inclusions mentioned represent a selection of what is covered at the time of writing. Additional terms and conditions may apply to different features. Additional fees may apply to the product. Please ensure that you read the product disclosure statement to determine all the current options and inclusions for the product you are considering.

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