Managed investments are generally known as pooled investments, where investors’ money is ‘pooled’ together and managed by investment experts (such as a fund manager), who will buy and sell investments on their behalf.
This can offer a solution for investors wanting professional investment expertise coupled with a strong level of diversification. There are several different types of managed investments, but some of the most well-known are managed funds, managed accounts and Exchange Traded Funds (ETFs).
Some managed investments focus on a single sector such as Australian shares, property or fixed interest investments. These are known as single sector funds and give investors exposure to a single asset class that’s suited to their investment profile.
Multi asset or diversified funds on the other hand give investors access to a range of different asset classes within the one fund, offering a greater level of diversification.
With a managed investment it’s possible to invest across the full range of asset classes (cash, fixed income, property and shares) with a smaller investment amount compared to investing in multiple assets classes directly.
A managed investment can be fully invested in a specific asset class such as commercial property or a sector such as emerging markets. It’s even possible for managed investments to invest in other managed investments.
To add another level of choice, some managed investments aim to outperform an overall market to deliver strong returns. These are known as active investments.
Passive investments, on the other hand, aim to replicate the returns of a particular market index such as the S&P ASX 200. Active funds tend to have higher associated fees than passive funds.
One of the main reasons investors opt for a managed investment is because a professional investment manager decides which assets to buy and sell and when to do it. In other words, they take care of the hard work.
Another reason why managed investments are attractive is they provide a level of diversification that isn’t usually possible for individual investors. For example, a property fund might hold assets such as suburban shopping centres or commercial office blocks, while an international share fund could own shares in several companies that trade on stock exchanges around the globe.
It’s important though to realise that with managed investments it is a professional investment manager that selects which specific investments to put money into and when the right time is to buy and sell, not the actual investor. It’s a good idea to read the Product Disclosure statement or any other relevant disclosure document to make sure it aligns with your own investment goals and individual circumstances.
Just like any investment, managed investments involve risk. When it comes to risks associated with managed investments specifically, there is the risk that the investment manager or managers don’t perform as expected against the benchmark set for the fund.
As a rule of thumb, the greater the potential for returns, the greater the level or risk. Therefore it’s important with any investment that you’re comfortable with the level of risk involved.
The degree of risk you’re willing to accept will depend on a number of factors but at the most basic level ask yourself - how would you feel if you lost a significant portion of money you’ve invested?
Managed investments will have different risk levels so it’s important to select a fund that suits your individual risk profile.
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