Managed Investments Explained

Managed investments are individual funds, professionally managed by investment specialists, in a pooled savings with other investors. When an individual investor invests, they are allocated units. These units represent the proportion of your "interest" in that fund. The specialist investment managers are required to follow processes and procedures that best ensure the fund reaches its objectives with consistency. Part of this process is that it is a requirement that every managed investment fund has a "product Disclosure Statement" (PDS). This provides in depth details on its objectives and fees as well as who are the managers, promoters and trustees, what the returns will be, how to withdraw and much more.
 
The level of what the fees and expenses of what the fund will "cost" is known as the "TER" (Total Expense Ratio). This is provided as a percentage to the average fund over a specific financial year and is shown before tax.
 
Normally a trustee is appointed to each of the funds who ensures that the investment manager abides by the stated mandate, as well as there being external audits and other checks. Many funds have been "coined" umbrella funds. What this means is that the investment manager diversifies the investment base. This is also referred to as a multi-sector fund. It basically means that the investment is spread over a range of asset classes, all under one umbrella. In theory this protects the overall investment on the premise that should one sector fall another should rise. Therefore managed investments may be classed as either multi-sector or single-sector investments.
 
Therefore the multi-sector funds and single-sector funds have different characteristics. As follows:

  • Multi-sector - assets from numerous classes, each asset is spread over many sectors, diversification is wide, can be either managed according to an asset allocation strategy or alternatively move with the general market and risk adjusted returns will likely be better.

  • Single-sector - focused on just one sector (EG healthcare or technology or utilities), is concentrated on a number of holdings and is more volatile compared to the overall stock market.

With regards to liquidity on managed investments, it is relatively good, with pricing established on a daily basis.
 
In New Zealand, most managed funds operate under a PIE structure when it comes to taxation. This means that the investment pays may pay a lower rate  than an individual in that taxation is calculated on the clients prescribed investor rate (PIR).

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