Investment Strategy

Understanding managed funds - part one

By AMP Capital

Managed funds allow you to pool your money with other investors, so that you can invest in larger assets that may otherwise be out of your reach. Part one in a three-part series, aims to outline the different types of managed funds available to investors.

Managed funds allow you to pool your money with other investors, so that you can invest in larger assets that may otherwise be out of your reach. There are many different types of asset classes to choose from, and each is managed by an expert investment manager who controls the fund.

This can be a stress-free way to invest, as your money is in the hands of an experienced financial professional with access to market information, research and opportunities not readily available to individual investors.

How it works

When you invest in a managed fund, you become a ‘unit holder’ as your money acquires units in the fund. Most managed funds offer a regular investment plan, meaning you can steadily grow wealth through regular investments with minimal upkeep. But remember, the value of your underlying assets can rise or fall depending on the market, varying the value of your overall investment from time to time.

Managed funds come in two basic categories – single asset funds or diversified funds. Single asset funds focus on a particular asset class, such as property, while diversified funds invest in a combination of asset classes. Within both categories are many different fund options, so you can choose the investment strategy that’s right for your investment goals, interests and appetite for risk.

Single asset funds

If you’d prefer to keep things simple and invest in just one type of asset, a single asset fund might be right for you. Single asset funds can invest in just one asset or a range of assets in the same asset class to increase diversification. Choose from:

Shares (or equities)

​When a fund buys shares in a listed company, it becomes a part owner (or shareholder) in the company. Shares have a very strong potential for growth – but at a higher risk.

Real estate

Through a managed fund, you can invest in new property developments which could include residential, commercial and industrial property. Investing in real estate offers high potential for capital growth, as the value is also driven by regular rental income.

Infrastructure

By investing in the utilities and facilities that provide essential services for economic growth, you can potentially benefit from stable inflation-linked cash flows and capital growth.

Bonds

Bonds are best understood as a debt instrument, in which funds are loaned to a corporate or government entity for a defined period of time at a fixed interest rate. As an investor you are effectively the ‘lender’, so you benefit from capital protection and income.

Diversified or multi-asset funds

If you’d prefer to invest across a range of asset classes and sectors, a diversified fund could be the right choice. But remember – the investment strategy of your chosen fund will determine the mix of assets the fund invests in. Choose from:

Balanced funds​

These portfolios generally allocate 70% of the investment to growth assets such as shares and property, with the other 30% invested in defensive assets such as cash and bonds.

Growth funds

Growth funds invest a higher percentage of their assets into shares and property (generally around 85%), offering the potential for higher return – but with more risk than a balanced fund.Income funds​By investing in income-producing assets such as fixed income, these funds aim to distribute income to investors on a regular basis. This can be useful if you’re seeking stable cash flow – for example, during a transition to retirement.

Capital stable funds

The opposite of balanced funds, capital stable funds are extremely low-risk. They generally invest 70% of funds in defensive assets, and around 30% in growth assets such as shares and property.

Did you know? With US$1,613 billion in assets, Australia’s managed funds are sixth largest in the world, and the largest in Asia1.

Why choose a managed fund?

Managed funds are popular for a number of reasons:

1. Cost-effective access to diverse assets

Many managed funds have low minimum requirements for how much you’ll need to invest – putting large-scale investments such as infrastructure or property within reach.

2. Easy upkeep

A professional investment manager will take care of the fund’s investment decisions, drawing on their specialised expertise and market research to find opportunities that meet the funds’ defined goals.

3. Setup to continually build wealth

Most managed funds will allow you to sign up for regular investments, so you can grow your wealth steadily by investing money in regular increments.

4. Diversify your portfolio

Managed funds make it easy to invest in a wide range of asset classes or across a wide spread of assets in the same asset class, reducing the risk of putting all of your money in just one market.

However, it’s worth remembering all investments come with risk. So when you invest in a managed fund, you need to remember that returns are not guaranteed and may vary over time. This is also true for your invested capital, so be prepared for the risk of loss.  There is also liquidity risk to consider and each managed fund will have its own risks around this, the risk will be higher if the fund invests in only unlisted assets such as property for example.

For specialist advice regarding your investment journey, call 1800 658 404 or email clientservices@ampcapital.com.

1Source: Australian Trade and Investment Commission, April 2017

  • Investment Strategy
  • SMSF News

Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

Cookies & Tracking on our website.  We use basic cookies to help remember selections you make on the website and to make the site work. We also use non-essential cookies, website tracking as well as analytics - so we can amongst other things, show which of our products and services may be relevant for you, and tailor marketing (if you have agreed to this). More details about our use of cookies and website analytics can be found here
You can turn off cookie collection and/or website tracking by updating your cookies & tracking preferences in your browser settings.