Products and Services

Managed Investments

In a managed investment:

  • Your money is pooled together with money from other investors to buy shares or some other kind of asset. 
  • You get an interest in the scheme. In almost all cases, instead of shares you get units in the scheme. The number of units you receive depends on how much you invest in the scheme. 
  • A professional investment manager operates the scheme. You do not have day to day control over the operation of the scheme. The investment manager may be called a fund manager or 'responsible entity'.

You will find managed investments referred to by many different names, but their essential nature is always the same. Other terms you may come across are managed funds, unit trusts, managed trusts, investment trusts, pooled funds, collective investments and investment funds.

1. Professional management

You may not have the time or the skill to manage your investments and are willing to pay a management fee to a professional manager to do it for you. Theoretically at least, your returns should also be greater because your investment is being managed by a professional.

2. Diversification

Pooling together large amounts of money enables the managers to invest in a spread of shares or other assets. Therefore, investor dollars are not usually all in one product which could easily fall in value.

If your  Seagrims -Your Financial Planners adviser recommends that you diversify your investments across a number of managed funds, make sure the portfolio is truly diversified. It is no good, for example, if your money is placed into three funds which have exactly the same investment strategy. The result will be that your money is invested in basically the same companies or properties in all three funds. That is not true diversification.

3. Low start-up costs

You can invest relatively small amounts (eg, $1000), which, if it were invested directly in shares, would attract brokerage fees. You can also develop a savings plan, investing small amounts in the scheme on a regular basis.

4. Minimal paperwork

The fund manager/responsible entity will prepare and send reports to you on the performance of your investments and any distributions you are entitled to.

1. The scheme is only as good as the underlying investment

If the scheme invests in shares, for example, then a fall in the price of the shares will mean that the price of the units will go down. Investment through a managed fund does not change the basic principles which apply to investing and risk.

2. Diversifying may mean your profits are diluted

The downside of a scheme diversifying across a number of companies or properties is that your profits are diluted. If one particular company is very successful, your overall result may be pulled down by those other companies that the fund invested in which were not successful.

3. You lose control of your money

The fund manager/responsible entity has been given responsibility to make the investment decisions for the fund. They may make bad decisions and the price of the units may suffer.

The team working for the fund manager/responsible entity may also change, which can impact on the performance of the fund manager. Sometimes an entire research team can move to another fund manager. This can make the past performance of a fund a misleading indicator of its future profitability. Your financial planner should be able to tell you whether the fund manager's team is stable or not.

4. Some funds can be expensive

Fees can add up quickly and you should check them before investing. Almost all funds charge an entry fee which will reduce the amount of your initial investment. This can significantly affect the longer term return of your investment.

You should also check what are the ongoing charges. These charges will be deducted from your returns.

Because it is quite common for investors to hold units in a number of managed funds, products have been developed to simplify managing those investments. These products are called investor directed portfolio services. The most popular of these products is called a master trust (sometimes called a master fund or a personal investment fund). It is an investment fund which invests in a range of other managed funds.

Another similar product is a wrap account. The difference is that wrap accounts can also cover direct investments like shares and property.

A master fund or wrap account may seem like an expensive option. You pay two sets of management fees, those of the master trust fund manager and those of the various direct fund managers. However, master fund managers argue that they can access many funds at reduced wholesale rates, and therefore the final fees are not that different to that charged by a retail fund.

The advantages of a master trust or wrap account are:

1. The management of your money is centralised.

You receive a single financial report from the fund manager which summarises the performance of all your investments. You don't have to keep track of a number of funds. This can be useful, for example, when you have to calculate capital gains and losses and imputation credits for tax purposes, in relation to a number of funds.

2. You can usually 'switch' between funds more cheaply.

You can often switch between funds within the master trust for little or no entry or exit fees.

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