Managed funds are becoming an increasingly popular investment option amongst kiwis – beating property in the number of people who have invested in one since 2020.
And, once you know a little bit about what a managed fund is and how they work, it’s easy to see why.
So, today we’re going to look at:
- What a managed fund is
- Why you should invest in them?
- How they’re similar to (and differ from) a KiwiSaver fund?
- The difference between active & passive managed funds
- Ethical investment options
So, what is a managed fund?
A managed fund is an investment vehicle that gives you access to a range of assets within a single fund. When you invest in a managed fund your money is pooled together with other investors. This allows for greater buying power and thereby access to investment opportunities you might not otherwise have.
You can have managed funds that invest in property, bonds, cash, or shares – or a mixture thereof, and managed funds that invest in particular sectors – like technology – or regions – like Europe, Asia Pacific, or New Zealand.
As the name suggests, a managed fund is generally managed by a person (or team) that sets an investment strategy and goal for the fund. The individual investments that make up the fund are selected to help the fund achieve its goal and generate a return for the investors.
And a managed fund can be made up of hundreds, if not thousands, of individual stocks and shares either locally (here in New Zealand) or globally.
Why should I invest in a managed fund?
Investing in a managed fund is a great way to build diversity into your investment portfolio. Not only is a managed fund itself generally diversified (since it’s invested in many different assets) but by choosing a handful of managed funds you can add diversity through sector, location, and risk exposure.
They are also a great investment option if you don’t want to invest in property or want to diversify away from property and aren’t interested in picking (and researching) individual shares.
Isn’t a managed fund just another word for KiwiSaver?
That’s a bit like saying isn’t ‘flower’ just another word for ‘plant’? While all KiwiSaver funds are managed funds, not all managed funds are part of the KiwiSaver retirement scheme. But if you understand how your KiwiSaver fund works, then you know how a managed fund works.
Like KiwiSaver, managed funds use a range of investment strategies.
A defensive fund is often more heavily invested in bonds and cash. They’re less likely to experience significant losses, but they’re also less likely to experience long-term significant gains.
A fund that’s on the growth side will have more exposure/investments in shares and property, making them more vulnerable to market volatility which means you’ll experience greater lows along with greater highs.
The key difference between a KiwiSaver fund and other managed funds (aside from employer and government contributions) is the liquidity of your investment. You can only access your KiwiSaver to buy a first home, once you hit 65, or if you find yourself in financial hardship. A more ‘traditional’ managed fund allows you to access your money essentially whenever you want.
Active vs Passive Managed Funds
The last thing I want to cover today is the difference between an active and a passive managed fund.
In an Active Managed Fund, the fund manager is actively buying and selling the assets that make up the fund in a bid to boost performance and get the best returns.
With a Passive Managed Fund, the fund manager tends to buy and sell assets less often than their actively managed counterparts.
While individual performance will differ between funds, regardless of whether they’re active or passive, you may notice a difference in fees between the two. Passive managed funds can be cheaper than active managed funds, so the fees won’t eat into your profits as much. But the fund you choose will, ultimately, depend on your investment goals, timelines, and how the fund fits with your values.
Ethical investment options
If you’re after a diverse portfolio with an ethical slant, you can achieve that with a managed fund as well, with plenty of options now available for you to choose an investment that aligns with your values.
Ethical investments will either follow an ESG (environmental, social and governance) or SRI (socially responsible investing) approach.
ESG funds tend to focus on investing in companies that follow positive environmental, social and governance principles and are making efforts to improve their practices, or are already leading the field, in these areas.
An SRI fund, on the other hand, takes specific ethical considerations into account when building the portfolio, choosing to avoid or include specific investment options or companies based on these considerations. This generally includes refusing to invest in companies involved with:
And, investing in ethical funds doesn’t mean you have to sacrifice returns, with ethical funds proving they’re able to perform just as well (if not better) than more traditional funds.
So now that you know a little bit more about what a managed fund is and why they’re worth investing in, how do you get started?
As with any investment, it’s important you understand your financial goals and investment strategy so that the fund you choose aligns with those goals.
The best way to do this is to work with a financial adviser who can help you identify what your goals are and what timeframe you’re working with to help you identify the funds that best fit your needs. You can book a session with an enable.me financial adviser here to get started (fees apply).
Disclaimers: This blog post is for informational purposes only and does not constitute individual financial advice. If you’re interested in receiving financial advice, you can book a consultation with an enable.me coach. Costs apply.
