Managed funds are a popular investment option used by many Australian investors, but they do not come without risk. There are literally thousands available to select from, making the task of choosing the right one for you a challenge.
One investment adviser, Stockspot, has produced a report that may help to ‘sort the wheat from the chaff’. Stockspot has published a list of the best-performing managed funds over recent years, and highlighted some of the worst.
Stockspot has done an analysis of 801 managed funds, highlighting the best of the best in three categories:
- the best performing Australian large shares managed fund
- the best performing Australian small shares managed fund
- the best performing global large shares managed fund.
What is a managed fund?
In simple terms, a managed fund is a type of investment where your money is pooled together with other investors. The federal government’s MoneySmart website explains this in more detail. “A fund manager then buys and sells assets, such as cash, shares, bonds and listed property trusts, on your behalf. Managed investment schemes and Corporate Collective Investment Vehicles (CCIVs) are different types of managed funds.”
The term ‘managed funds’ is an umbrella for six broad types of investments. These are cash funds, fixed interest or bond funds, mortgage funds, property funds, share (equity) funds and alternative investment funds. Each of these is examined in detail on the MoneyShare website.
The best of the best, according to Stockspot
Before drilling down to individual managed funds, Stockspot’s report displayed a performance comparison of two different types of funds. These are known as Active Funds and Exchange Traded Funds (ETFs).
Stockspot’s analysis showed that ETFs have consistently outperformed Active Funds over the past five years. Active Fund investment involves picking out and investing in specific companies. ETFs, on the other hand, are passive investments that simply track the overall market.
As Stockspot explains: “Active investing is a zero sum game. For every winner there has to be a loser. Since 95 per cent of trading happens between professionals you would expect the average active manager to underperform the market return by the amount of their fees and other trading costs.”
Over the past five years, this has proved to be the case, Stockspot’s analysis shows. This was the case for both large cap shares (shares that trade for corporations with a market capitalisation of $10 billion or more) and small cap shares (under $10 billion).
Stockspot’s review of 349 large cap shares showed active funds returned an average 6.96 per cent per annum after fees. In contrast, ETFs returned 8.85 per cent after fees. A review of 148 small cap shares told a similar tale. Active managed funds return 6.91 per cent per annum compared to a 7.43 per cent return for ETFs.
For those interested in specific funds, the best-performed large cap share was Glenmore Australian Equities. It had a five-year average return of 14.19 per cent. The leading small cap share was Regal Australian Small Companies Fund (17.83 per cent per annum over five years).
And the worst of the worst …
Stockspot also detailed the worst performers in the two categories. In the large cap category, BlackRock Australian Share Fund returned only 1.08 per cent per annum over five years. Bottom place in the small cap share category was Equitable Investors Dragonfly, which had an average negative return of -5.87 per cent.
A breakdown of both of these cases illustrates the potential volatility of active managed funds. While BlackRock Australian Share’s five-year return was 1.08, its three-year return was -4.6 per cent and its one-year return was 13.64 per cent.
Equitable Investors Dragonfly’s trend was similar. Its five-year return of -5.87 per cent is nowhere near as bad as its three-year of -17.84 per cent. In contrast, its one-year return (taking in the most recent 12 months) is in positive territory, at 8.78 per cent.
The lessons learnt from managed funds analysis
If you’re interested in a more granular review of managed funds performance, it’s available at Stockspot here. And while it gives an interesting insight into recent managed funds performances, it probably serves best as a reminder.
That reminder? Before making any big investment decisions, a chat to a registered financial adviser is highly recommended.
Have you invested in managed funds? Would you say you have a good knowledge of them? Let us know via the comments section below.
Also read: Most Aussies don’t know how super works
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
