Managed funds pool capital for active professional management offering diversification and a hands-off investment approach.
You can invest directly or via ASX's mFund service through brokers like nabtrade and CMC Invest.
Consider your risk profile and long-term goals; many funds underperform passive ETFs after typical 0.30% to 2% annual fees.
What is a managed fund?
Let's start with the basics.
A managed fund is a pool of investors' capital that is actively invested and managed by a professional fund manager.
For investors, the main appeal of a managed fund is that it lets them potentially benefit from the investing expertise of a professional fund manager and means they don't have to actively manage their own investments.
Some managed funds may invest in a particular asset class such as property, while others may invest in a variety of assets including property, cash, shares and bonds. In return for managing your money, the fund charges an ongoing management fee.
While exchange-traded funds (ETFs) can be considered a form of managed fund, the term normally refers to private funds that are actively managed by a fund manager, instead of passively tracking the performance of a certain stock index or other market.
How do managed funds work?
When you invest in a managed fund, you're effectively buying a share of the fund, but not a share of the underlying assets that the fund invests in.
Instead, the value of your share of the fund will rise or fall based on the performance of those underlying assets. If the value of the underlying assets go up, so to does the value of each unit or share of the fund.
Here's an example:
Say you buy 10 units (or shares) of a managed fund for $100 each (a total investment of $1,000). These unit prices reflect the total value of the assets within the fund.
Over the next 12 months, the fund performs well and the value of its assets goes up. Each unit of the fund is now worth $120.
As a result, your initial $1,000 investment is now worth $1,200 (10 units at $120 each), minus fees.
Some funds may also pass on the profits it makes from its assets as dividend payments to those invested in the fund.
These will normally be made as cash payments, but you may also have the option of reinvesting these dividends back into the fund.
How to invest in a managed fund
There are two main ways to invest in a managed fund in Australia:
1. Invest directly in the managed fund. Most managed funds require you to invest directly in the fund. Some funds will have fairly stringent requirements or may only be open to high net worth individuals. However, in Australia, you can invest in dozens of unlisted managed funds through the ASX's mFund service by first signing up with an eligible broker like nabtrade, CMC Invest or Bell Direct.2
2. Buy the managed fund through a share trading platform or broker. Some managed funds (including ETFs) can be traded on the ASX through a standard broker or share trading platform. In order to invest, you'll first need to sign up for a trading account and then search the platform for the managed fund you want to buy.
What is an mFund?
An mFund is an actively managed fund that isn't listed on the ASX, but can still be invested in through an online broker or trading platform using the ASX's mFund Settlement Service.
The mFund service launched in 2014 and now list more than 200 funds.
Which platforms offer managed funds?
The following platforms all let you invest in ASX mFunds:
ANZ
Bell Direct
Bendigo Invest Direct
BOQ Trading
CMC Invest
HSBC WorldTrader
Macquarie Online Trading
nabtrade
St George Directshares
What are the best ASX managed funds?
This is a list of the top 5 managed funds (mFunds) on the ASX, based on their annualised performance over the last 5 years (before fees):
Spheria Australian Microcap (SPM01) - 16.23% p.a.
Invesco Wholesale Global Opportunities Unhedged (IAL02) - 15.43% p.a.
Lakehouse Global Growth (LKH01) - 15.29% p.a.
Arrowstreet Global Equity (AGF01) - 14.91% p.a.
Franklin Global Systematic Equity A (LMA18) - 14.70%
This is based on the latest data from the Australian Securities Exchange (ASX) for the period up to 30 August 24.1
Best ASX managed funds in 2024
This is a list of the best-performing mFunds so far in 2024:
Lakehouse Global Growth (LKH01) - 24.38%
Munro Global Growth Ordinary (MUN01) - 22.44%
Franklin Global Systematic Equity A (LMA18) - 20.63%
Ausbil Australian SmallCap(AXW13) - 20.45%
Bennelong Emerging Companies (BAE05) - 20.28%
What do managed funds invest in?
Managed funds can invest in a large variety of assets including stocks, bonds, cash, property, commodities, derivatives and private equities.
Each managed fund will have its own approach to investing, including the types of assets it invests in and it's overall risk profile.
However, like superannuation funds, managed funds can broadly be grouped into the following categories:
Growth. Invests the vast majority of its capital in assets with higher potential for growth, including stocks and property.
Balanced. Invests the majority of its capital in assets with higher potential for growth.
Conservative. Invests the majority of its capital in cash, bonds or fixed interest accounts, with some in growth assets.
Cash. Invests exclusively in cash (or cash-equivalent) accounts such as bonds and term deposits.
How to pick a managed fund
While it may be tempting to simply go with the managed fund with the best return, there's much more to it than that.
As the old adage says, past performance is not a reliable indicator of future returns, and there's no guarantee that a fund that has performed well over the short term can maintain that performance over the long run.
The key consideration is actually picking a managed fund that matches your overall investment goals. You can do this via following these tips:
Understand your personal risk profile, investment objectives and how long you plan to invest. This is generally broken down into conservative, balanced, growth and high growth.
Managed fund type. With numerous fund types out there, investors should decide if they want an actively managed, passively managed, ethical or even listed or unlisted fund.
Consider the assets. Different funds obviously invest in different products. An investor should understand what assets they want to own.
Past performance. Investors should be looking for a fund with a good long-term track record of providing for their consumers. Although it should be highlighted that 1 good year doesn't suggest a trend of outperformance.
Fees and cost. Remember your returns are net of fees and costs.
How much does it cost to invest in a managed fund?
Most managed funds charge an annual management fee between 0.30% and 2%. This fee is charged regardless of how the fund performs.
You may need to pay an establishment fee when first joining the fund, as well as a contribution fee when you add money to the fund.
You could also be charged a performance fee if the fund beats its benchmark targets (but this means you'll have made money on your share of the fund).
Most managed funds also have a minimum investment threshold, which is normally between $1,000 and $30,000.
It's worth reading through a managed fund's product disclosure statement (PDS) before deciding whether to invest in a particular fund.
Alternatives to managed funds
Exchange-traded funds (ETFs)
Exchange-traded funds are effectively a form of passive managed fund that tracks the performance of a certain asset, market or sector. While ETFs are also managed by a professional fund manager, they aren't actively making investing decisions. Instead, an ETF will simply track the performance of an existing stock index like the ASX 200 or S&P 500, or track the price of another asset or commodity such as gold.
ETFs are traded on the stock market in the same way individual stocks are. This means you'll need a share trading account or broker in order to invest in ETFs.
Robo-advisors
Robo-advisors are a digital, low-cost alternative to managed funds. Like managed funds, robo-advisors manage your investments on your behalf, but use a combination of professional investors and algorithmic analysis to make investing decisions.
Invest in managed funds through a share trading platform
We currently don't have that product, but here are others to consider:
Looking for other options? Check out these similar products.
How we picked these
Finder Score for share trading platforms
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
What are the benefits of managed funds?
Managed funds can prove beneficial in a few ways:
Diversification. Because you're pooling your money with other investors, you can invest in multiple assets and company shares without paying an arm and a leg.
Expert assistance. Dealing with investments can be difficult and daunting. When you opt for managed funds, you have access to the advice and assistance of expert fund managers. These are the people who not only have the knowledge and expertise that can prove invaluable to investors but also the time to dedicate to managing multiple assets.
Risk reduction. A managed fund will pool your funds into a number of assets reducing your risk. It will also be professionally managed, which could reduce the risks.
Saving time. You won't have to dedicate huge amounts of time toward managing your investments because you have experts on hand to do all the heavy lifting for you.
Do more with your money. Using managed funds means that you can still invest even relatively small amounts of money in a range of assets, rather than settling for a single asset due to a lack of finances.
Disadvantages of managed funds
While managed funds can provide some benefits, there are also some disadvantages:
Below average returns. Depending on the fund you're with, you could be paying management fees for below market performance. This can be amplified if you get hit with the double whammy of both high fees and poor performance. In fact, most managed funds underperform a humble stock index over the long-term.
Investors flock to the fads. Like with shares, there's a likelihood of chasing last year's fad or a particular fund that has outperformed. This might not be beneficial if the trend fails to outperform in the next year.
Fees and tax concerns. Investors can find themselves paying more fees and end up with unknown tax issues.
Are managed funds suited to beginners?
Managed funds can be a great way for new investors to get into the market due to the relatively low cost and ease of access to a market.
Remember the main advantage to a managed fund is that it's professionally managed, meaning you gain access to professional knowledge and insights into markets.
Frequently asked questions
While your money is professionally managed, this does not protect you from all risks. It's still possible for the value of a managed fund to decrease after you have purchased it.
For inexperienced investors looking to grow their wealth, a managed fund could be a good place to start.
The main disadvantage is that, net of fees, many funds actually return less to investors than market-tracking products like ETFs.
Kylie Purcell is an experienced investments analyst and finance journalist with over a decade of expertise in a wide range of financial products, including online trading platforms, robo-advisors, stocks, ETFs and cryptocurrencies. She is a sought-after commentator and regularly shares her insights on the AFR, Yahoo Finance, The Motley Fool, SBS and News.com.au. Kylie hosts the Investment Finder video series and actively contributes to the investment community as a judge and panellist. She holds a Master of Arts in International Journalism, a Graduate Diploma in Economics, and ASIC-recognised certifications in securities and managed investments.
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