Managed Funds - Benefits

Owning units within a managed fund has benefits over directly owning the underlying investments. Mainly:

Diversification

By investing into a range of investments a managed fund is able to reduce volatility risks of investing in an asset class by using the pooling of investments to invest into numerous investments.  For example a fund investing in Australian Equities typically invests into 30-200 different stocks spreading the risks of a single share price plummeting.  Investors would need a sizeable fund to have this level of diversification within their own portfolio.

Professional management

It is perfectly normal to want to invest when investment returns have been good and cash in your investment when returns have been poor.  Unfortunately this is probably the worst time to invest and cash in your investments.

Professional managers specialise in making informed investment decisions to get the best possible return whilst ensuring they follow their prescribed investment strategy*. This allows investors to invest in assets to try and achieve the best returns for their portfolio without the emotional roller coaster impacting on their day to day investment decisions.

Hiring a professional on an individual basis can be a costly exercise. By using a pooled managed fund investment, investors are able to access high quality investment professionals for an annual management fee. Many investors just prefer the peace of mind that someone is making the investment decisions on their behalf.

Easier to invest into

Many investors find managed funds an easier alternative to managing their own investment portfolio on a day to day basis.Whilst researching which individual stocks to buy and sell can be a very satisfying and lucrative hobby, it can quickly become a full time job (particularly for larger portfolios) and individual investors will not be able to match the resources available to professional managers in making investment decisions.Investors may also feel it easier to buy and sell or just manage a portfolio of managed funds.

 

At Neville Ward Advice we specialise in actively structuring portfolios to help you hedge against these falls in the market whilst meeting your needs for growth and income.

Since each fund has its own specific investment objectives and strategies for achieving these, it is important that your financial planning review and the structuring of your portfolio provides a balance of risk versus return appropriate to your needs.

*Fund manager investment risk and strategy

Since investor's attitude to risk can vary, a manager sets out their investment strategy at outset.  This allows you to pick and choose investments to fit in with the level of risk you wish to take or even a sector you may wish to invest into such as investments in China or Technology funds.

Each managed fund has an investment objective which is described in the fund's prospectus. It is the fund manager’s role to achieve the best possible returns whilst following this investment strategy.

For example if a fund manager’s objective is to invest in Australian equities with a minimum of 85% in Australian equities and they feel the market is going to fall, their objective is to achieve the best possible return, leaving a minimum of 85% in Australian equities. They cannot switch all their holdings out of the market. At any one time there will be investors who feel Australian equities are a good investment and so the fund manager’s strategy has to follow what they are paid to do.  After all, investors have the freedom to switch to a different managed fund if they feel that sector is underperforming.

Actively structuring and reviewing your portfolio on a regular basis can have a significant impact on the value of your fund. Our financial planners portfolio reviews take into consideration underperforming funds and sectors in the market to ensure out of favour/underperforming funds do not continue to languish within your portfolio.

Fund objectives cover a wide range, from lower risk/conservative funds with a focus on preserving capital and producing income, through to higher risk/aggressive funds, where growth is the primary objective.