spread of a selection of product disclosure statements for funds as managed investments

‘Managed investments’ is a term that has different meanings according to the context in which it is used: to some it may suggest a process under which an investment portfolio is managed, but in this article ‘managed investments’ are better referred to, as managed funds. And by managed funds, we mean the funds that investment managers operate with prescribed financial outcome objectives, concentrating on defined investment philosophy and managed so as to constrain investment risk to ascribed parameters. Different types of managed investments are available to diversify portfolio asset allocation and address varying investor goals.

Managed investments can be categorised according to four main criteria:

  • Investment Tax Structure – Superannuation (including Rollover funds), Trusts, Insurance Bonds, Friendly Society Bonds, Term Allocated Pensions, Allocated Pensions/Annuities.
  • Asset ClassificationIncome (cash, fixed interest, mortgages and liquidity > 80 per cent of the total mix), Equity (Industrial and Resource shares, direct, listed and unlisted property, plus other equity related securities and liquidity > 90 per cent of the total mix), Multi-sector – funds which do not fit into the other categories of Income or Equity.
  • Geographical Location – investing in opportunities by geographical location including: Australia, United States, Japan, European Community, South East Asia, Global.
  • Product Type – Retail, Wholesale or Corporate.

More on the managed fund types available under the Asset Classification category above…

Income Funds

  • Cash – consisting of 100 per cent liquid assets, where liquid assets are defined as securities with a maturity of less than 180 days. These securities include 90-day bank bills, certificates of deposit, treasury notes, promissory notes and non-bank bills. These funds are immediately available and are useful for emergency cash needs and short-term investing. Interest rates may change daily in accordance with the demand for the securities the funds invest in, but the capital, while not guaranteed, is not expected to fall because of the nature of the underlying securities.
  • Enhanced Cash – where liquidity is at least 80 per cent and where it is defined as securities with a maturity of less than 180 days. These securities include 90-day bank bills, certificates of deposit, treasury notes, promissory notes and non-bank bills. The funds are immediately available and are useful for emergency cash needs and short-term investing. Interest rates may change daily in accordance with the demand for the securities the funds invest in.
  • Fixed Interest – funds are invested in securities issued by Australian banks, Government and semi-Government authorities and major financial institutions where the fixed interest component is 75 per cent or more. Fixed interest funds provide regular interest income for medium- to long-term investors. The initial investment is not guaranteed and may rise or fall depending on the current interest rate market. These might also be referenced as Bond Funds: the link is to a site in the USA but the information is generic and relevant to Bond Funds included in Australian portfolios.
  • Capital Guaranteed – these funds come with a guarantee that the capital will not fall and may apply to any ‘income’ fund, for example cash, fixed interest, mortgage or diversified. With some funds the guarantee only applies to the initial amounts invested, but more typically the guarantee will apply to the total value, including all interest credited to date. These funds may also have some additional conditions regarding redemption.
  • Mortgage Fund – these funds principally invest in residential or commercial property mortgages and provide regular income for medium- to long-term investors. Such funds will normally contain at least 50 per cent mortgages.
  • Income Fund – these funds may have a mix of cash, fixed interest, capital guaranteed and/or mortgages where none of the specific income funds is dominant.
  • Hybrid Fund – aims to provide a tax effective income through exposure to high quality convertible and listed debt securities. Hybrid ETFs provide access to a much broader range of fund management styles, strategies, asset classes and operational practices than classical ETFs, which typically will seek to track a share market index or other pre-determined portfolio of shares. Additionally, hybrid ETFs can accept cash applications, which means investors can buy units directly from the fund manager through lodging an application form contained in the fund prospectus as well as being able to buy units already issued on an exchange.

Equity Funds

  • Industrial Equity – these funds have a high proportion (75 per cent or more of the fund) of Australian industrial shares. International shares, other equity related securities (eg. a derivative such as a warrant), resource shares and property must constitute less than 15 per cent of the total fund.
  • Resource Equity – these funds have a high proportion (75 per cent or more of the fund) of Australian resource shares. Other equity related securities (for example, a derivative such as a warrant), industrial shares, international shares and property must constitute less than 15 per cent of the total fund.

Property Funds (Trusts)

Property securities funds include listed, unlisted and direct property generally greater than 75 per cent of the total fund and listed property greater than 65 per cent. In the Australian context –

  • Listed – refers to funds listed on the Australian Stock Exchange (ASX), or other recognised exchange operating in Australia.
  • Unlisted – refers to those funds not listed on the ASX but supported by a product disclosure statement (PDS) that may or may not be normally available to the public.
  • Direct – refers to a direct financial interest in property included in the fund that might be a minority holding or up to 100 per cent of ownership.

Diversified Funds

Diversified funds contain a mix of cash, fixed interest, shares, property and ‘other’ investments, which could not be categorised as Income or Equity funds.

  • Defensive Funds – invest in a diverse mix of assets with a majority in defensive assets of cash and fixed income and a modest investment in growth assets such as shares. The Fund’s exposure to these assets sector will be obtained primarily by investing directly into our sector specific funds. The Fund may also hold assets directly including derivatives, currency and other unit trusts. The objective is to provide secure income with a low risk of capital loss over the short-to-medium term with some capital growth over the long-term.
  • Moderate Funds – invest in a diverse mix of assets with an emphasis on secure income producing assets. The Fund’s exposure to these assets sector will be obtained primarily by investing directly into our sector specific funds. The Fund may also hold assets directly including derivatives, currency and other unit trust. The objective is to provide relatively stable total returns over the short-to-medium term with some capital growth over the long-term through a diversified mix of growth and defensive assets.
  • Balanced Funds – invest in a diverse mix of assets with both income producing assets of cash and fixed interest and growth assets of shares and property. The Fund’s exposure to these assets sectors will be obtained primarily by investing directly into our sector specific funds. The Fund may also hold assets directly including derivatives, currency and other unit trusts. The objective is to provide moderate to high total returns (before fees and taxes) over the medium term from a combination of capital growth and income through a diversified mix of growth and defensive assets.
  • Growth Funds – invest in a divers mix of assets with an emphasis on growth oriented assets of Australian and global shares, with investment in defensive assets of cash and fixed interest providing some income and stability of returns. The Fund’s exposure to these asset sectors will be obtained primarily by investing directly into our sector specific funds. The Fund may also hold assets directly including derivatives, currency and other unit trusts. The objective is to provide a high total returns (before fees and taxes) over the medium-to-long term largely through capital growth by investing in a mix of growth and defensive assets.
  • High Growth Funds – invest primarily in Australian and global shares with some exposure to property. The Fund’s exposure to these asset sectors will be obtained primarily by investing into our sector specific funds. The Fund may also hold assets directly including derivatives, currency and other unit trusts. The objective is to provide superior total returns (before fees and taxes) over the long term through capital growth by investing in growth assets.

Sector Specific Funds

  • Australian Share Funds – invest directly or through other funds in a wide range of Australian shares listed or expected to be listed on the Australian Stock Exchange.
  • International Share Funds – invest directly or through other funds in a wide range of global shares listed or expected to be listed on world stock exchanges, including emerging markets and across a diverse range of industries.
  • Property Security Funds – invest in a wide range of Australian property securities listed, or expected to be listed, on the Australian Stock Exchange, that offer an indirect interest in property.
  • Australian Fixed Interest Funds – invest direct or through other funds in a wide range of Australian interest bearing securities such as Commonwealth, State and corporate bonds.
  • International Fixed Interest Funds – invest direct or through other funds in a wide range of investment grade fixed income securities such as government, corporate, and typically other investment grade international fixed income securities.

Advantages of Managed Investments

Once an appropriate investment strategy has been determined, there are usually a number of possible implementation options. Depending on the strategy concerned, the options may include: managed investments, cash and fixed interest investments, direct investments such as shares, and direct property. While all of these investments could have a place in a portfolio, managed investments have a number of advantages over other types of investments. Managed investments are cost effective and provide many benefits to large and small investors, including:

  • Diversification – the large pool of funds available enables fund managers to diversify the spread of investments across all asset classes and provide access to investments which may not be readily available to individual investors. For example, large retail property complexes and international shares.
  • Cost Efficiency – most stockbroking firms charge between 1.5 to 2.5 per cent for every transaction made by a client (buy or sell). The buy and sell price, transaction fees and stamp duty charges of a professionally managed direct share portfolio may easily exceed the total costs of an average equity trust. Similarly, with property, the total costs to buy, sell, hold and manage assets may exceed total unit trust costs.
  • Professional Management and Expertise – fund managers have the expertise to monitor and research investment opportunities and apply their experience to managing investment portfolios across all asset classes.
  • Liquidity – investors in managed investments can usually access funds within 5 to 30 days and are usually able to access a part of their funds without needing to cash in the entire investment.
  • Regular Reporting and Information – managed investments take care of the administrative hassles and expenses that often accompany direct ownership of investments. Fund managers provide regular information to investors regarding investment performance and also provide tax summaries at the end of the financial year.
  • Protection – managed investments are regulated by the Australian Prudential Regulation Authority and Australian Securities and Investments Commission through legislation which provides safeguards to protect investors.

A significant amount of the time advisers at Continuum Financial Planners Pty Ltd spend in researching investment opportunities for client (and prospective clients), is spent with fund managers, their analysts and their business representatives, staying up to date with their operations and outcomes: to benefit from this researched knowledge and take strategic advice on the construction of your strategic investment plan, phone our office (on 07-34213456), or complete the Contact Us form linked from our website and be assured of prompt attention.

(This article was originally posted in February 201; it has been occasionally updated or refreshed, most recently, in January, 2019.)