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Managed funds, as the name suggests, are an investment structure where professional fund managers select and manage the fund’s investments on behalf of their investors.
Managed funds have long appealed to investors who may not have the time or the expertise to invest certain asset classes on their own behalf. And as investors pool their money, managed funds also give them access to a wider range of assets and asset classes than they would otherwise have access to.
When you invest in a managed fund the number of ‘units’ you receive will depend on the unit price on the day of purchase. Units are of equal value and their price will reflect the value of the fund’s assets which may change daily.
Traditionally, managed funds were ‘unlisted’ which meant units could only be purchased by applying to the fund. These days, many are listed on the ASX mFunds service so units can be bought and sold through a broker.
Investment returns come in the form of capital growth in the value of your units and income from distributions. While distributions may be declared on a regular basis, they ultimately depend on the performance of the fund and its earnings.
Importantly, fund managers will deduct management and often performance-based fees from fund earnings before distributing income.
Today there are thousands of managed funds in Australia, with almost $375 billion in funds under management according to the latest ABS statistics. The size and maturity of the managed funds industry means there is a wide variety of investment strategies on offer.
Some managed funds invest in a single asset class such as shares or fixed interest, or strategy such as high yield shares or sustainability. So-called multi-sector funds invest across multiple asset classes. Some fund managers actively select and trade investments in order to beat the market, while absolute return funds aim to not just beat the market but make positive returns every year. Passive funds aim to track a particular market or market index. Generally, the higher the degree of active management the higher the fees.
How are SMSFs using managed funds?
It is often claimed that SMSFs are not as diversified as large super funds, with too much focus on Australian shares and cash and not enough exposure to international markets. However, research by Class suggests that view fails to take into account indirect investment by SMSFs via managed funds.
At first glance, the latest figures from Class as at 30 June 2019 show a paltry 7% of SMSF assets are held in international shares. But dig a little deeper, and a high proportion of the 32% of SMSF assets held in managed trusts (and the 22% held in ETFs) are exposed to international shares.
Source: Class
*Excluding ETFs
As at 30 June, the top 20 most popular managed funds held 55.4% in international equities and just 8.3% in Australian equities. Another 11.2% was held in international fixed interest. (International ETFs made up 59% of the top 20 ETF investment holdings.)
It’s clear from these findings that SMSFs are actively using managed funds (and ETFs) to gain exposure to international shares, possibly because they are more comfortable letting a professional fund manager select stocks. It is also easier and cheaper to build a diversified portfolio of international assets and manage the currency exposure through a managed fund rather than attempt to buy and sell individual investments direct.
Class’ quarterly SMSF Benchmark Reports focus on the top 20 investments in each asset class. In order to gain more insight into investor behavior, back in December they conducted a wider review of over 3,000 managed funds held by SMSFs.
Assets held inside managed funds (Top 20 vs all)
| Top 20 | All | |
|---|---|---|
| International Equities | 51.6% | 34.1% |
| Australian Equities | 7.9% | 24.0% |
| Australian Fixed Interest | 9.1% | 11.2% |
| International Fixed Interest | 11.1% | 10.5% |
| Cash | 13.5% | 9.0% |
| Direct Property | 0.0% | 4.2% |
| Listed Property | 3.0% | 3.3% |
| Other | 3.8% | 3.7% |
Source: Class
As the table shows, as at 31 December 2018 the top 20 managed funds held by SMSFs had 51.6% of assets in international shares. However, this figure dropped to 34.1% across the broader set of over 3,000 managed funds. The percentage of Australian equities jumped from 7.9% in the top 20 funds to 24% across all funds measured.
Class concluded that as SMSFs increase the number of funds they invest in they also increase their diversification across different asset classes. By contrast, SMSFs that invest in only one or two funds tended to focus on international equities.
Class also found interesting differences in asset allocation between SMSFs that held managed funds and those that didn’t.
SMSFs with managed funds held 10 times the amount invested in international shares than SMSFs that don’t hold managed funds. Those with managed funds also held higher levels of debt securities, another sophisticated asset class where investors are likely to need professional fund managers.
The trend was reversed for direct property, where SMSFs with managed funds has 16.5% less in direct property than SMSFs with no managed funds. Class put this down to the fact that direct property is a more hands-on investment that professional fund managers tend to avoid in favour of listed property trusts.
20 most popular managed funds invested in by SMSFs
The top 20 list of managed funds is ranked by the percentage of SMSFs that hold these managed funds, rather than the value of assets that SMSFs have invested in those funds, although both figures are provided in the table. The top 3 spots are dominated by Magellan and Platinum international equity funds.
20 most popular managed funds invested in by SMSFs
| Rank | Security Code | Description | % of Funds with Managed Funds that hold this security | % of total SMSF Managed Fund Investments* |
|---|---|---|---|---|
| 1 | MGE0001AU | Magellan Global Fund | 23.5% | 4.1% |
| 2 | PLA0002AU | Platinum International Fund | 20.5% | 3.2% |
| 3 | PLA0004AU | Platinum Asia Fund | 9.8% | 1.4% |
| 4 | MAQ0482AU | Winton Global Alpha Fund | 7.6% | 0.7% |
| 5 | IOF0045AU | Antipodes Global Fund -Class P | 7.3% | 1.1% |
| 6 | ETL0018AU | PIMCO Global Bond Fund -Wholesale Class | 7.1% | 0.8% |
| 7 | HOW0052AU | Kapstream Absolute Return Income Fund | 6.5% | 0.9% |
| 8 | FID0008AU | Fidelity Australian Equities Fund | 6.4% | 1.2% |
| 9 | MAQ0277AU | Macquarie Income Opportunities Fund | 6.4% | 0.9% |
| 10 | IOF0145AU | Janus Henderson Tactical Income Fund | 6.3% | 0.9% |
| 11 | MIA0001AU | MFS Global Equity Trust | 6.1% | 1.0% |
| 12 | VAN0003AU | Vanguard W’sale International Shares Index Fund | 6.0% | 1.2% |
| 13 | CSA0038AU | Bentham Global Income Fund | 5.9% | 0.6% |
| 14 | MAQ0410AU | Walter Scott Global Equity Fund | 5.8% | 1.2% |
| 15 | BFL0004AU | Bennelong ex-20 Australian Equities Fund | 5.3% | 0.7% |
| 16 | VAN0004AU | Vanguard Australian Property Securities Index Fund | 5.1% | 0.6% |
| 17 | ETL0016AU | PIMCO Diversified Fixed Interest Fund -Wholesale Class | 5.0% | 0.8% |
| 18 | ETL0032AU | Aberdeen Standard Emerging Opportunities Fund | 4.8% | 0.4% |
| 19 | MGE0002AU | Magellan Infrastructure Fund | 4.6% | 0.5% |
| 20 | TGP0034AU | RARE Infrastructure Value Fund -Unhedged | 4.4% | 0.4% |
Source: Class (class.com.au). Data as at 30 June 2019
*Percentage each security makes up of the total SMSF Managed Fund investments e.g. MGE0001AU is 4.1% of the total SMSF investments in Managed Funds.
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