Managed funds are investment funds that are actively managed by fund managers on your behalf. Most pension funds and schemes still invest the bulk of the money in their custody within these types of funds.
In this short guide, we will help you understand the following:
- What is a managed fund?
- What are the costs associated with managed funds
- Where can you invest in managed funds?
- Fund manager performance
- How to use managed funds in an investment strategy
What is a managed fund?
Managed funds follow a wide range of investment strategies, investing in public markets and in other assets – e.g. unlisted companies, real estate – to seek to achieve returns for investors. The whole idea behind them is that you can leave your money to be invested by someone else in a collective investment scheme, and that these professionals will make money on your behalf.
What are the costs associated with managed funds
Managed funds typically charge an annual management fee which is applied to the assets in the fund. This usually ranges from 1% to 1.5%. It is important to understand that this fee is levied regardless of whether the fund makes or loses money. While some of this goes towards paying the fund manager, there are other costs which funds incur, including brokerage fees, custody fees and administration fees, which investors in the fund will pay for. Some of these costs are not covered by the management fee; the Total Expense Ratio or TER of the fund has come to be seen as a better measure of its overall expense.
Managed funds include investment trusts, which are simply funds that have been listed as companies on the stock exchange.
Where can you invest in managed funds?
It is very easy to buy and sell managed funds using a self-select ISA. Other ISAs will also distribute money to managed funds in an effort to achieve consistent returns on your behalf.
Fund manager performance
If you doubt you will have time to monitor your investments on a regular basis, you are very new to the investment game, or you simply worry that you don’t have the skills or experience to manage your own money, managed funds can be a good place to start. However, most managed funds are not able to beat stock market indexes – by some estimates as many as 60-70% of UK equity funds can’t consistently beat the FTSE 100 index. On this basis it is still important that you check the past performance of fund managers before investing in managed funds.
How to use managed funds in an investment strategy
Managed funds are a good way to form the core of an investment portfolio – e.g. with a good global equities fund to start with – around which you can add other investments. But just don’t forget that there are more poor fund managers than good ones out there. Websites like The Armchair Trader can provide you with more independent information about picking the right fund managers and the right funds.