Insights

Benefits of Managed Funds

Managed funds have a number of advantages that allow you to select options that suit your specific needs and objectives. These benefits may include:

• Diversification: Managed funds can provide you with a diversified portfolio that may invest across a range of asset classes and securities
• Wide choice of investments: Wide choice of asset classes and diversified portfolios
• Specialists: Access to specialist investments and investment styles
• Tailored portfolio: Can have a tailored portfolio where specialist managed funds are chosen (e.g. infrastructure, emerging markets, small caps)
• Professional investment manager: Team of professional investment managers responsible for the investment selection, review and monitoring. This also includes risk management
• Active performance: Active managed funds will actively manage investments to take advantage of the changing market outlook and therefore have the potential to outperform their index
• Low level of participation: There is a low level of participation and time involvement required by you in the management of the managed fund compared to investing directly
• Regular investments: Many managed funds allow regular investments including small minimum amounts. This can assist you if you are investing using a ‘Dollar cost averaging’ approach and/or a regular savings plan
• Tax statements: Managed funds provide tax statements to assist with you with completing your tax returns

Disadvantages and Risks of Managed Funds

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:

• Market risk: The performance of the managed fund will be affected by the assets and securities that it invests into. If it invests in ‘growth’ assets like shares and property, it has the potential to provide higher returns over the long term but will also have a higher level of risk including the risk of capital losses compared to more secure investments like cash and bonds.
• Limited control: You have no control over the individual investments that are bought and sold.
• Tax management: You have no control over the timing of sales and purchases of assets or assets selected to be sold. This may affect the capital gains tax outcome of the managed fund.
• Capital gains in distributions: The distributions paid from a managed fund may include a return of capital which can be less tax effective for investors.

• Limited transparency: There is limited transparency of the underlying portfolio and investments. A managed fund will tend to report of the securities and assets held in the portfolio but this tends to be reported with a lag.
• Higher fees: Fees can be high due to the management and administration fees and buy-sell spreads.
• Currency risk: Movements in the relative value of international currencies can influence the value of international assets.

Gearing risk: Some managed funds may borrow funds to increase potential returns. This gearing can magnify both gains and losses.