Let's start with the basics.
A managed fund is a pool of investors' capital that is actively invested and managed by a professional fund manager.
For investors, the main appeal of a managed fund is that it lets them potentially benefit from the investing expertise of a professional fund manager and means they don't have to actively manage their own investments.
Some managed funds may invest in a particular asset class such as property, while others may invest in a variety of assets including property, cash, shares and bonds. In return for managing your money, the fund charges an ongoing management fee.
While exchange-traded funds (ETFs) can be considered a form of managed fund, the term normally refers to private funds that are actively managed by a fund manager, instead of passively tracking the performance of a certain stock index or other market.
When you invest in a managed fund, you're effectively buying a share of the fund, but not a share of the underlying assets that the fund invests in.
Instead, the value of your share of the fund will rise or fall based on the performance of those underlying assets. If the value of the underlying assets go up, so to does the value of each unit or share of the fund.
Here's an example:
Say you buy 10 units (or shares) of a managed fund for $100 each (a total investment of $1,000). These unit prices reflect the total value of the assets within the fund.
Over the next 12 months, the fund performs well and the value of its assets goes up. Each unit of the fund is now worth $120.
As a result, your initial $1,000 investment is now worth $1,200 (10 units at $120 each), minus fees.
Some funds may also pass on the profits it makes from its assets as dividend payments to those invested in the fund.
These will normally be made as cash payments, but you may also have the option of reinvesting these dividends back into the fund.
There are two main ways to invest in a managed fund in Australia:
1. Invest directly in the managed fund.
Most managed funds require you to invest directly in the fund. Some funds will have fairly stringent requirements or may only be open to high net worth individuals. However, in Australia, you can invest in dozens of unlisted managed funds through the ASX's mFund service by first signing up with an eligible broker like nabtrade, CMC or Bell Direct.2
2. Buy the managed fund through a share trading platform or broker.
Some managed funds (including ETFs) can be traded on the ASX through a standard broker or share trading platform. In order to invest, you'll first need to sign up for a trading account and then search the platform for the managed fund you want to buy.
An mFund is an actively managed fund that isn't listed on the ASX, but can still be invested in through an online broker or trading platform using the ASX's mFund Settlement Service.
The mFund service launched in 2014 and now list more than 200 funds.
The following platforms all let you invest in ASX mFunds:
This is a list of the top 5 managed funds (mFunds) on the ASX, based on their annualised performance over the last 5 years (before fees):
This is based on the latest data from the Australian Securities Exchange (ASX) for the period up to 30 August 24.1
This is a list of the best-performing mFunds so far in 2024:
Managed funds can invest in a large variety of assets including stocks, bonds, cash, property, commodities, derivatives and private equities.
Each managed fund will have its own approach to investing, including the types of assets it invests in and it's overall risk profile.
However, like superannuation funds, managed funds can broadly be grouped into the following categories:
While it may be tempting to simply go with the managed fund with the best return, there's much more to it than that.
As the old adage says, past performance is not a reliable indicator of future returns, and there's no guarantee that a fund that has performed well over the short term can maintain that performance over the long run.
The key consideration is actually picking a managed fund that matches your overall investment goals. You can do this via following these tips:
Most managed funds charge an annual management fee between 0.30% and 2%. This fee is charged regardless of how the fund performs.
You may need to pay an establishment fee when first joining the fund, as well as a contribution fee when you add money to the fund.
You could also be charged a performance fee if the fund beats its benchmark targets (but this means you'll have made money on your share of the fund).
Most managed funds also have a minimum investment threshold, which is normally between $1,000 and $30,000.
It's worth reading through a managed fund's product disclosure statement (PDS) before deciding whether to invest in a particular fund.
Exchange-traded funds are effectively a form of passive managed fund that tracks the performance of a certain asset, market or sector. While ETFs are also managed by a professional fund manager, they aren't actively making investing decisions. Instead, an ETF will simply track the performance of an existing stock index like the ASX 200 or S&P 500, or track the price of another asset or commodity such as gold.
ETFs are traded on the stock market in the same way individual stocks are. This means you'll need a share trading account or broker in order to invest in ETFs.
Robo-advisors are a digital, low-cost alternative to managed funds. Like managed funds, robo-advisors manage your investments on your behalf, but use a combination of professional investors and algorithmic analysis to make investing decisions.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Managed funds can prove beneficial in a few ways:
While managed funds can provide some benefits, there are also some disadvantages:
Managed funds can be a great way for new investors to get into the market due to the relatively low cost and ease of access to a market.
Remember the main advantage to a managed fund is that it's professionally managed, meaning you gain access to professional knowledge and insights into markets.
CHESS sponsorship allows you to directly own ASX listed shares in your own name, but it comes with some drawbacks. Find out if it's right for you.
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