Managed Funds
What are managed funds?

Managed funds are a pooled investment where investors group their money to be managed by a professional investment manager for a fee. The professional manager then manages this pool of money to buy shares, property, cash securities or bonds to try and get the best return.

Managed funds are also known by a number of different names, including unit trusts, investment trusts and managed trusts. Managed fund investors typically purchase units within a fund based on the amount they wish to invest and the unit price on that particular day. For example, an investor placing $5,000 into a fund at a buy price of $1.00 per unit will acquire 5,000 units for his or her investment; minus any initial fee the manager charges.

Fund manager portfolio management and strategy

Investor attitude to risk can vary and as a result fund managers set out their investment strategy at outset, allowing you to pick and choose investments to fit in with the level of risk or even a sector you wish to invest into such as investments in low risk fixed interest funds or a fund investing primarily in China.

Each managed fund has an investment objective, described in the fund's prospectus. It is the fund manager’s role to achieve the best possible returns whilst following this investment strategy. It’s important to note, the manager cannot invest outside of their investment strategy, ie a China fund manager cannot invest in Australian shares if they feel the Australian market will outperform the China market.

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.

A financial planner's real value add is in structuring and restructuring your portfolio in line with your attitude to risk, needs and changes in the market

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.

How do managed funds increase in value?

Managed fund investors are expecting a greater return from their managed fund over the medium to long term than receiving interest in the bank.  Investors who do not feel this is achievable should not invest in assets other than a bank or building society.  Investment returns within managed funds come from a number of sources and depend on the strategy of the fund. A fixed interest fund is typically made up of fixed interest and bond investments, returns are typically interest, capital gains of the bonds traded and some dividends.  Equity fund returns are mainly made up of capital growth and some dividends. Property funds are typically made up of rent and management fees, as well as capital gains on the sale of property held.

Fund income and gains is distributed proportionately to all the unit holders. The income is either paid out as a distribution or reflected in an increase in the value of their units. Some funds allow you to purchase additional units with the distribution.

Where the unit value increases, earnings just accumulate within the fund until the unit holder (investor) redeems (sells) the units.