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Value of Professional Funds Management
Value of Professional Funds Management
FUNDS MANAGEMENT
HOW FUND
MANAGERS HELP
TO GROW YOUR
WEALTH
What is funds management?
Key Messages Funds management is the professional management for smaller investors with minimum capital1. How right
of a pool of assets by an investment specialist known they were, as managed funds and the management of
This report outlines:
as a fund manager. This is generally on behalf of these assets have become a means for investors of all
• The importance of diversifying your superannuation funds, insurance funds or individual sizes to access professionally managed investments.
investment portfolio; investors such as Self Managed Super Funds (SMSFs). Today the asset management industry is entrusted
with over $76 trillion for retail and institutional clients
• The benefits of fund managers The history of pooled assets (or managed
globally. That is equivalent to 100% of the world gross
professionally managing your investments), dates back to 1774 with the creation of a
domestic product (GDP) and 40% of global financial
superannuation or investment Dutch investment trust as it was believed by providing
assets2.
diversification it would increase the appeal and access
portfolio;
• The increased access to a wider
range of asset classes through a fund
In a managed fund, your money is pooled together with other investors. An investment
manager; and
manager then buys and sells shares or other assets on your behalf. The value of your
• The pooling of risk when using fund investment will rise or fall with the value of the underlying assets.
managers.
ASIC Money Smart
Funds management can be accessed through many pensions, exchange traded funds and listed
different products and tax structures including investment companies.
investment trusts, superannuation funds, allocated
1
Investopedia – “A brief history of the mutual fund”
2
IMF – “the Asset Management Industry and Financial Stability”, April 2015
Using a fund manager either directly or through your superannuation fund gives you numerous benefits including:
1. Professional management of your management in companies and positively influence
superannuation or investment portfolio: access to business decisions affecting your investment.
professional investment specialists – these experts 5. Fund managers are continually managing your
have the knowledge and skills relating to funds investment: Fund managers are always monitoring
management as well as the time required to research portfolios so they can assess breaking news as it
markets, economies and companies. happens. Even when you are on holidays they are
2. Access to a wider range of asset classes that managing your investment. This could be reacting
individuals may find difficult to access themselves. For to a surprise change in interest rates to deciding on
example, global equities (shares), emerging markets, whether to participate in a rights issue.
property, alternatives or infrastructure. You can invest 6. Administration and paperwork: Owning one
into managed funds which in turn invest in these asset investment can generate a lot of paperwork, owning a
classes on your behalf. portfolio of investments will multiply the paperwork.
3. Diversification of your superannuation or Fund managers take care of all the paperwork for
investment portfolio: Fund managers help diversify the many investments they make and just send you a
your investments, aiming to reduce volatility of consolidated report.
returns. This is achieved by pooling your investment 7. Rebalancing your portfolio: In addition to selecting
with other investors in a managed fund. This allows appropriate investments, fund managers also make
the fund manager to invest in a wider range of sure the amount invested in any one investment stays
securities than if you invested directly. consistent with the objective of the portfolio. This
4. Greater access to company research and insights: requires regular rebalancing, reducing exposure to
Fund managers have access to research to help make investments that have done well or adding to those
informed decisions. As they represent large investors that may have underperformed in the short term.
in individual stocks, they can gain access to senior
The fund managers will invest this money in multiple c. Access to company research and insights;
asset classes and through various investment d. Access to a wider range of asset classes;
strategies, as determined by the superannuation fund.
These asset classes include Australian and offshore e. Continual management of your portfolio;
shares, property, fixed income (bonds) and alternative f. Administration and paper work taken care of; and
assets such as hedge funds, infrastructure and private
equity. This diversification helps lower volatility and g. Rebalancing of your portfolio if required.
maximise returns.
The fund manager will invest in the way that is 3. Non-superannuation investments - investing
mandated by the super fund. Superannuation funds directly with a fund manager
have a fiduciary duty to allocate resources to benefit
You can also directly invest into a managed fund in
their members. Your risk profile and life stage may be
order to grow your savings and investment for future
taken into account depending on which strategy you
goals, outside of your superannuation.
belong to.
For example, you may be in a balanced fund for
someone in their 40’s. The assets for this fund will be
very well diversified, include many asset classes, have
more growth assets to focus on higher growth. On
the other hand a person in their 60’s may have more
income assets in their portfolio to focus on
yield/income.
FUNDS
INVESTMENT TRUST INSURANCE BOND
SHARES,
BONDS, LISTED
SUPERANNUATION INFRASTRUCTURE, INVESTMENT
FUND ALTERNATIVES, COMPANY
PROPERTY
MANAGEMENT EXCHANGE
ALLOCATED PENSION
TRADED FUND
Source: FSC
Figure 2: Changes in Australian Investment Trust Median Fees by Major Asset Class, 2010–15
Aust shares Australian fixed Australian Real Estate Global Fixed Global Equity
1.8
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
2010 2011 2012 2013 2014 2015
Figure 3: Changes in Australian Investment Trust Median fees by major asset class, 2010-14
Global Equity Australian Equity Australian Real Estate Global Fixed Income Australian Fixed Income
1.6
ICR%
1.4
1.2
1.0
0.8
0.6
0.4
Source: Morningstar
1 month 1 year
40% 10 years
40%
5% 30% 30%
3% 20% 20%
10% 10%
1%
-1% -10%
-10%
-3% -20% -20%
Source: Morningstar
Source: Morningstar
www.moneysmart.gov.au
www.fsc.org.au