Managed funds are an option you may have to invest your money.
Depending on your goals, your timeframe, and your risk appetite, you might find managed funds are an option worth considering. Especially if you're new to investing.
Jump straight to:
How managed funds work in Australia
What are the benefits of investing in managed funds?
What are the risks of managed funds?
Managed funds vs ETFs: what's the difference?
How to compare managed funds in Australia
How to invest in managed funds
Ready to start exploring managed funds?
Think of it this way. Imagine you've got a friend who's a foodie and wants to take you to a new restaurant. So you and your other friends rock up for dinner, and you all pitch in to pay.
Because there are so many of you, your money goes really far, and you get to sample heaps of dishes from the menu. Your friend, who manages the evening, is in charge of ordering, paying the bill, telling everyone how much they owe, and collecting the money.
You benefit from getting to taste more of the menu than you might have had if you'd dined on your own, though you run the risk of some of the dishes being duds.
Managed funds are kind of like this, except instead of dinner, you're pooling your money with other investors to buy exposure to different investment assets.
These assets may include:
- Shares in companies
- Property
- Infrastructure
- Cash
- Fixed income
- Commodities, which are physical assets such as gold or oil
There's still a manager in charge of the investment decisions and running the fund, but the idea is that you give them the money and they manage it on your behalf.
As with all investments, returns are not guaranteed, and past performance is not a reliable indicator of future performance.
How managed funds work in Australia
When you invest your money in a managed fund, your investment buys units in the fund.
Each unit represents an interest in the fund. The fund's value is usually the total value of all the assets the fund has invested in, less relevant fees, costs, and liabilities. The price of each unit will rise and fall depending on the value of the underlying assets.
The fund will typically calculate this total once a day on weekdays, and as a result the unit price will update once per day.
So, for example, if your managed fund has five underlying investments, and they all rise in value on the same day, then the value of the fund, and therefore the unit price, will too. If some of them rise and others fall, the unit price may remain steadier. If they all fall, the unit price will too.
Managed funds may receive income from their investments, for example if the fund owns shares in a company that pays a dividend, or holds cash and earns interest. These earnings may be passed on to you, the investor, in what's known as a distribution. Your share of the distribution will typically depend on how many units you own.
You can usually invest in managed funds directly through the fund provider, or through an online broker or investment platform. Typically you'll be able to buy and sell your units through the fund provider, online broker, or investment platform, though the timing will depend on the fund and platform.
Keep in mind there's always a chance you'll end up with less money than you started with, especially if you need to take it out sooner than you planned. In general, there will also be fees and charges for managing your money.
What are the benefits of investing in managed funds?
So, why do some people invest in managed funds? What are the potential benefits?
In the restaurant dinner, you get someone who knows the menu choosing the best dishes, you get a little taste of everything even if there are some dishes you don't like, and you get the convenience of someone else figuring it all out, while you get to enjoy the food and the company.
In the case of managed funds, it can be similar:
- Professional management. A professional is investing your money on your behalf. Professional investors typically spend their days planning, researching, and rebalancing their portfolios in order to meet their stated objectives. Some investors prefer managed funds as they don't have the time or expertise to research and choose every investment themselves, so they'd prefer a professional to do it.
- Diversification. With a managed fund you can get exposure to a range of different investments in a single transaction. Each unit you buy represents a share of everything that fund is invested in, whether it's companies on the sharemarket, bonds, commodities, green energy producers, or whatever the fund chooses. It can act as a form of diversification, which is a strategy some investors use to derisk their portfolios. The idea is that when you invest across different asset types or sectors, you're protecting yourself when one of them dips.
- Access to more investments. If you're buying your own investments, you'll typically have access to the investments your broker or investment platform allows, and you may be limited by minimum purchase amounts. Managed fund managers may have more exposure to a wider range of investments than you do, and may be able to mix and match them into the same fund in ways that you as an individual can't.
- Convenience. Buying into a managed fund may give you the convenience of being able to make regular investments in a range of assets without having to do the legwork of buying and selling yourself.
What are the risks of managed funds?
There must be some downsides, though?
Back at the restaurant, you don't have complete control over the order, your foodie friend does. Maybe you're allergic to prawns but they order a seafood dish anyway. Maybe you go on a Monday and miss out on the cheaper Tuesday prices the next day. Maybe the portion sizes are smaller than you thought they'd be, or you think some of the dishes are secretly overrated but get stuck with them anyway.
There can be similar risks with managed funds:
- You can lose money. There's no guarantee you'll make money even with a carefully structured fund. This is true of all investments. The market goes up and down, and so will the value of your own investment.
- Fees and costs could affect your returns. Fees and costs may be paid from the fund or by investors, which can reduce your returns.
- You don't have complete control. Your fund manager may choose assets you wouldn't have chosen for yourself, or don't understand.
- Liquidity risk. Buying units in a managed fund isn't always like buying shares on the stock market, where prices can change minute by minute. Depending on the fund, you may not be able to access your money instantly, and the price you receive may depend on when your withdrawal is processed.
- Underperformance. Depending on your managed fund's investment strategy, there may be periods when it underperforms the wider market. It's important to understand your investment, including the recommended timeframe, so you have realistic expectations.
Managed funds vs ETFs: what's the difference?
Managed funds and ETFs are similar, but there are a few key differences.
Managed funds are usually accessed through a fund provider, app, or investment platform, and their unit price will typically update once per day.
ETFs are exchange traded funds. Many are designed to track the broader performance of an underlying asset type, for example an index, sector, or commodity, though some are actively managed.
Because they're listed on the stock exchange, their price updates multiple times per day when the market is open.
Neither an ETF nor a managed fund is automatically a better choice. It depends on your individual goals and circumstances.
We get into the difference between ETFs, managed funds, and shares here.
How to compare managed funds in Australia
If you're looking for the best managed funds in Australia, you'll want to compare your options. There's no single best option for everyone, so here's what to think about when looking at each fund and deciding whether it lines up with your personal goals and circumstances.
- Consider the investment strategy. An investment strategy may outline the types of investments the fund aims to make, the returns it's targeting, and the volatility it expects. It should explain who the target market is, and how the investment manager plans to make decisions. Each managed fund should clearly publish this wherever their product is available, so you can read it.
- Compare fees and costs. Each managed fund will cost a different amount of money. Fees and costs may include management fees, transaction costs, account fees, or currency conversion fees.
- Compare the risk level. Managed funds will usually include a Standard Risk Measure, which gives you an estimate of how many negative annual returns the fund may experience over a 20-year period. This can help you understand how bumpy the ride could be.
- Compare the asset mix. What are you actually investing in? Each managed fund will have a different combination of assets. Some will be more growth than defensive, others will be more concentrated than diversified, and still others will focus on a particular market, sector, or theme.
- Compare the minimum investment. Some funds require a minimum investment amount before you can get started. This can vary a lot, and it's worth checking you can afford the price of entry before devoting too much time to research. With Spaceship Voyager, there is no minimum investment for one-off investments, though other fees and costs may apply.
- Compare withdrawal rules. It's worth checking how and when you can withdraw your money. Some funds have minimum withdrawal amounts, exit costs, and other conditions you should know about.
- Compare the recommended timeframe. Recommended timeframes generally align to the risk profile of the fund you're investing in. In general, funds that are higher risk are aligned with a longer recommended holding timeframe.
- Read the PDS and TMD. Each managed fund should have a Product Disclosure Statement and a Target Market Determination. These documents can help you understand how the fund works, what it costs, the risks involved, and who it's designed for.
- Don't rely on past performance. Past performance is not a reliable indicator of future performance. Markets go up and down.
How to invest in managed funds
This section is all about you. What are your goals? What's your timeframe? How much money do you have to invest?
Once you know the answers to these questions, and you've considered the points above, you'll be in a better position to compare your options and find a managed fund that may line up with what you're looking for.
In general, once you choose a managed fund to invest in, getting started can be relatively simple. You may need to create an account, pass ID checks, and make your first investment, which may have a minimum amount.
Once you've made your first investment and built familiarity with the platform, you might consider whether regular investing or dollar-cost averaging is a strategy you want to pursue. From there, it's worth reviewing your investment at a timeframe that makes sense for you.
Not sure where to start? At Spaceship we have five Spaceship Voyager portfolios that are managed funds. They have a range of target returns and risk profiles, and different investment strategies.
For example, the Spaceship Origin portfolio holds around 100 of the largest companies in Australia, and around 100 of the largest companies in the world. The Spaceship Explorer portfolio is made up of bonds, cash, and ETFs, and aims to work towards steadier performance over time, though returns aren't guaranteed, and the value of your investment can still go up and down.
Each portfolio has its own investment strategy and risk profile, which means it's worth comparing your options and reading the relevant PDS and TMD before deciding to invest.
Here's where you can compare your options.
FAQs
Are managed funds good for beginners?
Managed funds may appeal to some beginners because they offer professional management and diversification. Whether a managed fund suits you depends on your goals, timeframe, risk appetite, and the specific fund.
Can you lose money in a managed fund?
Managed funds are investments, so their value can rise and fall. As with all investments, there's a risk you'll get back less than you invested.
How do managed funds make money?
Managed funds may generate returns through capital growth if investments rise in value, and through income such as dividends, interest, or distributions paid to the fund. Returns aren't guaranteed.
Do managed funds pay distributions?
Some managed funds pay distributions, which may come from income earned by the fund and passed on to investors.
What fees do managed funds charge?
Managed fund fees vary, and may include management fees, transaction costs, account or platform fees, buy/sell spreads, or performance fees.
What's the difference between managed funds and ETFs?
Managed funds are usually accessed through a fund provider, app, or platform, while ETFs trade on an exchange. Both can offer access to a range of investments.
How much money do you need to start investing in managed funds?
The amount you need to invest in a managed fund depends on the fund or platform. Some have minimum investment amounts and others don't.
How do you compare managed funds in Australia?
To compare managed funds in Australia, consider looking at the fund's investment strategy, fees and costs, risk level, asset mix, minimum investment, withdrawal rules, recommended timeframe, and the relevant PDS and TMD.
Ready to start exploring managed funds?
Managed funds can be a way to invest in a range of assets without having to choose every investment yourself. But before you get started, it's worth understanding the fund's strategy, fees, asset mix, risks, and whether it lines up with your goals and timeframe.
With Spaceship Voyager, you can choose from five managed fund portfolios, each with its own investment strategy and risk profile. Before deciding whether to invest, read the relevant PDS and TMD available on Spaceship's website.
