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Strategies

The many benefits of managed funds - along with the variety of investment strategies and risk profiles adopted by fund managers - mean these products can easily be integrated into your portfolio In a manner to assist most investors.

Choosing a fund

There are a number of questions that investors ask before investing in a managed fund or a range/combination of funds to create a portfolio:

  • What overall return am I looking for?
  • How much risk am I willing to take on?
  • Do I want to generate regular income, or am I looking for long-term growth?
  • What is my investment timeframe?
  • Am I looking to invest in a specific asset class or market sector?
  • What is the fund’s track record?
  • What fees are charged?

Diversification - strategic and tactical asset allocation

Choosing a managed fund, a combination of managed funds or a managed fund in conjunction with other investments such as shares, LICs, ETFs, A-REITs, Infrastructure funds or Absolute return funds can build out an investment portfolio that is suited to your investment objectives (eg income or growth) and risk profile.

In establishing a portfolio structure, an investor will start by establishing their strategic asset allocation (SAA). This would be set at a high level around the proportion of asset classes that is considered to best deliver the primary objective (eg income or growth).

As a part of managing and monitoring your portfolio, they would review review and rebalance the portfolio from time to time to ensure that it has the potential to meet the strategic objective as that stands and as it may change over time. This is referred to as tactical asset allocation (TAA).

Managing a portfolio in this way may require an investor to hold only a few investments in combination. Alternatively, they can choose a manager and fund capable of delivering this outcome for them, removing the need for their own management of SAA and TAA considerations. 

Reinvesting your dividends or distributions

Some managed investments allow you to reinvest dividends or distributions back into the fund. This allows you to purchase more shares or units   using income from the fund that you receive and which may have banked to expand your investment in the fund.

Dividends or distributions reinvested are still to be treated as income and as such, are subject to taxation at the rate appropriate to the individual investor or investment entity (eg SMSF). Investors should seek their own taxation advice on these matters.

A consideration when selecting to reinvest, may be around how reinvestment into one component of the portfolio affects the overall strategic asset allocation.

This material is for educational purposes and it is not intended to constitute financial advice.

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