About Managed Funds
Managed Funds such as Listed Investment Companies (LICs) have traded on the Australian Stock Exchange for many years. Managed Funds can provide exposure to a professionally managed and diversified portfolio of assets. These may include Australian shares, international shares, fixed income securities, unlisted private companies and specialist sectors. Importantly Managed Funds can be bought and sold on ASX in the same way as any other share.
Investors own a proportion of the investment portfolio equal to the size of their investment, and are entitled to any profits and distributions (dividends), but also subject to losses if the value of the portfolio declines.
The variety of asset classes is wide, and management styles range from very conservative to aggressive. There is a Managed Fund tailored to virtually every set of investment goals, timeframes and risk tolerance and are an increasingly popular tool for investors to accumulate and preserve wealth.
Types of Managed Funds
There are predominantly three types of Managed Funds trading on ASX:
LIC / LIT & ARF Product List
ASX in conjunction with Morningstar produce quarterly performance reports. These reports show all of the LICs / LITs and ARFs available to trade together with their ASX code and data such as market capitalisation and performance returns. ASX also produces monthly LIC NTA reports. Click here to view the product list and NTA reports.
Key product features
Managed Funds listed on ASX include features of share investments and managed investments. These features include:
- Ease and flexibility of transaction
- Information availability
- Three day settlement
- Low cost
- Integration with other investments
- Flexibility using derivatives and related securities
Risks of Managed Funds
Managed Funds can effectively reduce the risk of being exposed to a single security, by investing in a portfolio of securities, thereby reducing the impact of a poor performance by any single security.
However there are a number of other risks to be aware of. The risks that apply will largely be determined by the asset class you invest in, and the selection of investments the portfolio manager makes. These risks include:
Market risk - Markets, and asset classes within them, are cyclical; the performance of various asset classes is not necessarily correlated over time. Market risk is the risk of investing in an asset class which may decline in value.
Security risk - Within any given asset class different securities may perform differently. The individual securities selected for a Managed Fund will ultimately determine its risk level and performance.
Diversification risk - Investing in a small number of assets or in only one asset class exposes an investor to the risk that these assets underperform. Without diversification, your investment fortunes are tied to the performance of a narrow section of the market.
Currency risk - Movements in the relative value of international currencies influence the value of international assets.
Liquidity risk - Listed Managed Investments incorporate two levels of liquidity risk. The first relates to the portfolio manager's ability to buy or sell positions for the investment portfolio, the second relates to an individual investor's ability to buy or sell the Managed Fund.
Structure risk - The structural and operational characteristics of the Managed Fund may affect its ability to perform.
Gearing risk - Some Managed Funds may borrow funds to increase potential returns, a technique that can magnify both gains and losses.