Do you know what a managed share fund is?

Most people these days have a superannuation fund, which means most people are likely to have investments in a managed fund. A managed fund is simply a portfolio of investments that are managed by professional investment managers. For example, a managed share fund invests in one or more companies listed on an exchange such as the Australian Securities Exchange (ASX).

Why choose a managed fund?

A managed fund can help you diversify your portfolio, which means your funds are invested across a range of different assets and managers which can help you manage your risk. A managed fund can also give you access to assets that you may not be able to invest in directly.

How to choose a managed share fund

There are many managed share funds on the market so how do you select one? Our research team provides recommendations to your financial planner based on an extensive and rigorous selection process. We asked our research team about some of their selection criteria.

What do you look for in a fund manager?

We believe the shares listed on the larger exchanges such as the ASX are reasonably efficiently priced relative to one another because professional investors are continuously analysing these shares and operating in these markets. To consistently gain an angle, edge or information advantage, we believe fund managers need to be engaged in in-depth research activities. Not only should they be speaking to the companies they are analysing as well as stockbroking analysts, but also to industry experts, consultants, competitors, suppliers, customers and overseas listed companies in the same industry. In so doing, they can develop insights that may not be reflected in consensus market expectations. An awareness of global trends and likely macroeconomic conditions is also important.

How do you assess the investment teams?

We believe investment teams need to be more experienced and astute than the average investment team within their peer group, to increase the probability of consistently maintaining a competitive edge.

The most important factor in assessing the team is the intellect and skill of the fund managers and analysts. Previous industry experience is important especially in more technical sectors, such as mining, oil and gas, and global health care - analysts who have covered their sector for a number of years are more likely to identify insights specific to their particular sector or shares. Analysts also need to have a manageable workload and be given time to properly analyse each share in the sector they cover.

Once the research is analysed, what next?

The investment process needs to be logical, coherent and disciplined. We look for an effective and coherent decision making process, a disciplined approach to portfolio construction and sensible approach to risk management.

Are smaller or larger fund managers better?

Large fund managers may be less nimble and flexible in buying and selling shares which can be a hurdle to potential outperformance, therefore, we require higher confidence in the skills of those investment teams. At the other end of the scale, smaller fund managers may be at a higher risk of closure and may also find it difficult to incentivise and retain key investment staff.

What else do you look for?

We work in a highly regulated industry so compliance is important. It’s also important to avoid any wrong-doing that could affect investors, so it’s important that the fund manager has the right attitude to compliance and has the appropriate policies and risk controls in place.

Your financial planner can help you determine if a managed share fund is right for you and help you select investment options that are appropriate to your circumstances and needs.