Advantages of Managed Funds
Managed funds clearly have their advantages, though it is questionable whether the average investor is familiar with these benefits.
Fundamentally, the main benefit of professionally managed funds is that they provide access to an investment that offers numerous investing opportunities that the individual investor would otherwise not have been able to access.
Additionally, the wide variety of managed funds available ensures that the personal requirements of each individual investor may be met. Whether high risk/high capital growth investments or the low risk investment that provides consistent income over a period of time, managed funds offer solutions for almost every investor.
Main advantages include:
- Diversification of risk
- Professional management
- Buying strength
- Access to International markets and investments
Managed funds can hold up to several hundred different investments. These investments can be diversified across countries, asset classes, industries and companies. A “diverse” portfolio reduces the impact of any fluctuations in an investment’s market value.
For example, take an individual investor and a managed fund with an investment universe of stocks A, B and C. The first investor holds $100,000 of stock C and a managed fund holds $100,000 of stocks A, B and C, equally weighted. If the market value of stock C declines by 10% then the first investor would lose $10,000, whereas the managed fund’s loss would be limited to approximately $3,300 or 3.3%.
Fund managers are experienced and qualified professionals who specialise in the selection and maintenance of investments. The manager maintains extensive contacts outside the firm and has access to detailed information, which together with in-house expertise, allow it to make informed timely decisions on behalf of investors.
Fund managers are in constant touch with the markets in which they invest, thus providing a particular advantage for investors wanting to invest in markets or sectors in which they have little or no experience.
Buying strength comes from the ability to buy in bulk. That means that costs can be reduced if the fund manager negotiates better deals for you. By pooling your assets with other investors through managed funds, you also gain access to a variety of investments that you may have not been able to invest in as an individual.
Managed funds provide private investors with access to markets and strategies that rely on economies of scale. The commercial money market will not even talk to an investor who has less than $1 million, but private investors can access this market through cash management trusts. Similarly, a small investor seeking to run an active, diversified, international share portfolio directly would be undermined by broking and logistical difficulties.
International equity trusts, however, can run an active book in which broking costs represent only a fraction of the portfolio.
The pooled investment vehicle allows investors with as little as $1,000 to hold major stocks, invest in prime commercial property, ride the yield curve and dabble in international securities. Moreover the investor can usually add, subtract or switch investments across the asset classes with relative ease.
There are cost savings, too, for fund managers. Because they are buying and selling large amounts of investments on a regular basis, they can negotiate much lower transaction costs than you can as a private investor.
Managed funds provide the personal investor with the opportunity to invest their money across the world, depending on what is requested by the investor.
For example, there are funds that invest directly into established markets such as Europe, Australia and the United States. There are also funds that invest into specific regions such as Europe and Asia and there are funds that even invest into emerging markets, such as Western Asia and Latin America.
While a personal investor may indeed be able to invest through their broker internationally, through a managed fund you are allowing experts to invest in the best possible international investments, dictated by the funds' predetermined mandate.
Fund managers are tapped into worldwide information networks which provide not only information on local opportunities but also stock specific information from the world over.
Another advantage of using a managed fund is that the manager will look after all the paperwork for you, the buying and the selling, the decisions on rights issues, the collection of income, rent and dividends and so on. And then, on a regular basis, the Fund Manager will report to you on the performance of the fund.
Overall, managed funds allow the personal investor the luxury of many benefits that otherwise would have been out of their reach. Solid diversification and spread of risk, professional research, and access to timely information are just some of the advantages.