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Not all managed funds are the same

Posted by Kingsley David on 12 September 2019 09:51:10 AEST

The term ‘managed fund’ refers to a class of investment product where the collective monies of individual investors are pooled into a single vehicle (in Australia, normally a unit trust) and then invested by a professional manager into one or more asset classes such as debt securities, listed equities, direct/indirect property and others.

If one was to disregard systemic factors (i.e. of being a managed fund that is part of a market or an economy, however one defines this), a comparison between any two managed funds may also be viewed as primarily a comparison between what the funds invest in (i.e. what asset classes) and how the fund vehicles are set up (i.e. largely, who the manager is).

managed funds

 

There is no dispute that the manager’s skill (within the management mandate) can have a material impact on a fund’s performance at any point in time. However, given the high accreditation standards in Australia as to who can be licensed to manage an investment fund and the tendency of most fund managers to ‘run with herd’ in terms of benchmarking performance, an argument may be put forward that over time the performance difference attributed solely to manager’s skill are unlikely to be markedly different.

A case may be therefore made that what the funds invest in (i.e. what asset classes) over time would materially represent the likely difference in investment outcome profile.

In considering the commonly known assets classes such as debt securities, listed equities and direct/indirect property, the following table provides a snapshot of the rights of a fund when investing in these assets classes:

Asset Class

Legally certain right to receive a pre-know return on investment

Legally certain right to have the full amount invested returned

Legally certain right to exit the investment at a pre-known point in time

Debt securities

YES

YES

YES

Listed equities

NO

NO

NO

Units in other funds that own property and/or in property itself

POSSIBLY

NO

NO

 

Obviously, debt securities represent the most certain of the asset classes and equities the least certain – and in compensation for that greater uncertainty, those investing in equities funds would always seek much higher returns.

The asset class of debt securities covers not just bonds (i.e. issued by a company or single entity) but also securities issued over an asset pool (i.e. such as Residential Mortgage Backed Securities, which are issued over pools of home finance mortgages).

These later type of securities often allow an investor to access a higher rate of return than, say a term deposit, while still having legal certainty of return, repayment and investment tenure.

Locally, the available investment alternatives to access Australian Dollar denominated debt asset pools that have also been certified as Shariah compliant are sparse – with the MCCA Income Fund one such rarity.

 MCCA Income Fund

This website is managed by MCCA Limited on behalf of MCCA and its related bodies corporate (together called the "MCCA Group"). You must take responsibility for your own investment decisions and to this end you should consider obtaining independent advice before making any investment or financial decision. We do not provide personal financial advice and therefore you should seek your own advice from a qualified financial planner or advisor. Where a Product Disclosure Statement (PDS) has been issued for any MCCA investment product you can only invest if you have received a copy of the PDS, read the PDS and have applied to become an investor using the application form in the PDS. You must provide at all times suitable identification required under Australian law to become an investor

 

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