1. What are active managed funds?
An active managed fund is typically a portfolio of assets that are actively managed on the investor’s behalf by a fund manager. Actively managed funds are those where the fund manager aims to outperform a benchmark by buying, selling and holding securities (e.g. stocks) and typically have a differentiated approach vs a passive managed fund.
Objectives will vary but will usually focus on making specific investments to outperform a specified benchmark.
2. What is the difference between an active managed fund, a passive managed fund, a Listed Investment Company (LICs) and an ETF (exchange traded fund)?
Funds or investment products can differ in their structure and/or their investment objectives or goals.
Managed Funds are pooled investments that are typically operated by a ‘responsible entity’ in Australia, often using a unit trust structure. They are usually “open ended”, which means that the number of units on issue can increase or decrease as investors join or leave the fund, sometimes on a daily basis.
Investors wanting to use unlisted managed funds (sometimes simply referred to as “managed funds”) must complete an application form and submit money to the responsible entity. A redemption or withdrawal form is required to redeem money from the fund. Some managed funds are listed on a stock exchange like the ASX. Listed managed funds are called Exchange Traded Funds (ETFs). Investors wanting to use ETFs must purchase (or sell) them on the stock exchange.
The goal of active funds is to try to outperform their benchmarks using the combined expertise of an investment team. The goal of passive funds is to mimic the performance of a particular benchmark or market.
Importantly, unlisted managed funds can be passive or active, and the same can be said for ETFs.
Like managed funds, Listed Investment Companies (LICs) have an investment team who is responsible for selecting and managing a pool of investments. LICs are actively managed. Like ETFs, LICs are listed on a stock exchange such as the ASX. However, they have two important differences to managed funds. Firstly, while managed funds are normally unit trusts, LICs are incorporated as public companies. Secondly, while managed funds (including ETFs) are generally “open ended”, LICs are generally “close ended”, so the number of shares on issue can only changes under limited circumstances.
Talk to your investment adviser to determine which one is right for you.
3. How are managed funds priced?
When investing in a fund, your money buys a set number of units that vary in price depending on the value of assets in the fund at a particular point in time. The ‘per unit’ price is determined daily by the total value of the fund’s assets adjusted for any liabilities. This net value figure is divided by the total number of units held by all investors of the fund on that same day to determine price per unit. The price of the individual unit is then multiplied by the total number of units you hold to determine the total value of your investment. The unit price reflects the net value of the fund’s investments.
4. What are the underlying investments?
Underlying investments refers to the portfolio of securities that make up the fund. Details of the State Street Fund’s composition and holdings can be found on this website or in the Fund's Product Disclosure Statement.
5. Why are active managed funds more expensive than ETF’s or index funds?
Management costs have become increasingly important to investors because they can have a significant impact on your portfolio's return and potential for wealth accumulation. As actively managed funds require a deeper level of research, analysis and ongoing management by investment professionals, the funds incur a management fee that is typically more expensive compared to passive funds which require less ongoing/intensive management and research.
