Managed Funds

This week we’re talking about managed funds – a little 101 explanation for something almost all of us would be invested in.

I say that because that is where the bulk of our superannuation money is invested. So even if you haven’t used a managed fund in your own name before, the chances are your super is invested in either one, or a variety of managed funds.

A managed fund is a great way to get exposure to a diversified range of assets at an affordable price and without having to do all of the research on each individual share yourself.

Let the professionals do it

The way it works is that everyone’s money who has invested in the particular managed fund goes into a big pool and then a fund manager, or probably a team of fund managers, invest the money on our behalf. So they do all the research and select all the shares to buy and sell, essentially managing the fund.

Because buying and selling shares comes with costs, namely brokerage fees, it can be quite expensive and time consuming to do this yourself, especially when starting out.

This being said many investors with very large portfolios will still choose to invest in managed funds because they prefer the ease of letting the professionals choose their investments, rather than having to do this themselves. Most people would prefer to focus on what they’re good at than spend all day watching the stock market.

Now, we’ve been talking about a managed fund comprising of shares, but managed funds exist that invest in almost anything you can think of.

Diverse Investments

There are funds that invest in Australian commercial property for example, or USA residential property, or Japanese fixed interest (that’s cash type products). Even within the equities sector, there may be managed funds made up purely of shares of infrastructure companies.

Basically each fund would have a theme, or focus, and that way you can choose different funds to make up your portfolio, ensuring you are well diversified. There are also funds that invest across a broad range of assets for us, and these are called diversified funds. There are even funds that invest in other funds, to create a balanced portfolio.

As you can see, it gets a little complicated but hopefully that’s give you a good starting point for understanding managed funds and how they work.

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4 Responses to “Managed Funds”

  1. Jef Miles

    The only thing that I’d contend with managed funds is that they can have high ICR’s, then again if they’re performing then this could justify them :)..

    Reply
    • getrichadmin

      Exactly, and there are so many options however it’s ALWAYS worth checking out the fees before going ahead with anything.

      Reply
  2. Chris

    Sarah, worth pointing out to your readers that the average cost of investing in a managed fund, after all fees and costs are accounted for can be upwards of 3%. We conducted a study of 497 Australian managed funds last year and found that the average management fee was 1.91%. That’s even before adviser fees, platform fees, transaction fees, entry and exit costs. Moreover the average Australian fund manager actually underperformed the market over 3, 5 and 10 years (in shares as well as bonds and other asset classes). Investors can access lower cost exposure to shares, bonds and other markets via low-fee index funds. Many of these are listed on the ASX and are called Exchange Traded Funds or ETFs.

    Reply
    • getrichadmin

      Absolutely Chris, it’s very important to always check out the fees associated with anything we purchase in life, and that includes managed funds. Personally I’m a big fan of SMAs, index funds and ETFs as they are generally lower in cost but always need to check out anything fully before making a decision to invest! Thanks for the comment! :)

      Reply

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