Learn more about managed funds
A managed fund is one type of ‘managed investment scheme’ (MIS), which is a professionally managed investment portfolio that pools the money of multiple investors. Investment/fund managers are appointed to manage the money within the fund including the selection, buying and selling of the underlying investments.
Pooling your money with other investors can open the door to investment opportunities that might not be accessible through direct investment. This approach also enhances your portfolio’s diversification. Plus, with a managed fund structure, you benefit from professional management of your investments, helping your money work harder for you.
The fund manager or administrator typically offers a variety of investment options for you to choose from. Each option comes with distinct investment goals, timeframes, risk levels, and underlying assets, allowing you to select the best fit for your financial objectives.
Some managed funds offer a diversified allocation across different asset classes based on risk levels. For example, a “balanced” fund typically invests about half of the portfolio in growth assets like stocks and real estate, while the other half is allocated to more defensive assets such as cash and bonds.
The assets within a managed fund can generate income, such as interest, rental income, dividends, or realized capital gains, while also potentially delivering capital growth.
The fund manager deducts applicable fees and expenses from the generated income, with the remaining amount typically distributed to investors (unit holders).
This income is reported in the investor’s tax return and taxed at their marginal tax rate. If franking credits are available, they are passed on to investors, helping to reduce their tax liability.
If you sell units, it may result in a capital gain or loss depending on changes in the fund’s unit price since your initial and subsequent investments. A 50% capital gains tax discount applies to gains on units held for over 12 months, unless the units are owned by a company.
Managed funds have a number of advantages that allow you to select options that suit your specific needs and objectives. These benefits may include:
There are a number of risks and disadvantages of managed funds to be aware of. The key risks will be determined by the nature of the managed fund including the asset classes and securities that it invests in. The risks and disadvantages include:
Investors should decide whether to invest in rapidly growing companies or undervalued industry leaders. Each option carries different risk and return profiles and may perform better at various stages of the market cycle. It’s important for investors to choose a strategy that aligns with their personal financial goals.
Growth investing focuses on high-quality companies with strong earnings growth, high return on equity, high profit margins, and typically low dividend yields. While there are no guarantees, these companies are often industry innovators generating significant profits. They tend to grow rapidly by reinvesting most or all of their earnings to sustain future growth.
Value investing focuses on purchasing strong companies at attractive prices, often when their stock has fallen due to being out of favor with investors or during an unfavorable economic cycle. Investment managers typically seek a low price-to-earnings ratio, low price-to-sales ratio, and higher dividend yields. Value investing prioritizes buying stocks at the right price, with the belief that these undervalued companies will eventually rebound as the market recognizes their true worth.
In recent years, there has been a growing interest in other investment styles, such as Quality and Lower Volatility investing. Many products now focus on one or both of these strategies.”
Investing in Quality companies is usually associated with companies with efficient management, sound balance sheets, low debt, profitability, and strong cash flows. Quality strategies seek to provide excess returns by investing in companies that are better positioned for short- and long-term growth.
Lower Volatility investing targets companies with less volatile share prices that typically fall less than the share market during share market declines.
Higher quality and lower volatility portfolios aim to deliver strong up-market participation and down-market protection. These portfolios also tend to blend well with growth and value portfolios to improve overall portfolio diversification.
If you would like to discuss your options, we encourage you to simply request a call and we will reach out as soon as possible.
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