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Six Key Reasons to Invest in a Managed Fund APSEC Funds Management March 2021 The share market is a popular investment choice for many Australians looking to grow or protect their wealth over time. According to the ASX Australian Investor Study 2020 (1), of 19.4 million adult Australians, 46% (9 million) Australian adults currently hold investments other than their primary residence, with another 900,000 planning to begin investing in the next 12 months. Of these investors, more than half are direct, or DIY shareholders. The growth of available investment research and the decreasing cost of executing trades has made this an accessible and potentially lucrative pathway for investors of all experience levels. The other major share market investment pathway, for both individuals and institutions, is the managed funds industry, which held $3,828.1b billion total funds under management in September 2020, as per the latest ABS industry data. (2) Managed funds allow you as an individual to pool your money together with the money of multiple investors, to purchase units in the fund, and a professional Investment Manager then buys and sells shares or other assets (property, cash, bonds etc) on your behalf. The value of units you own in a managed fund start with the amount of money you invest at the value of each individual unit at the time of purchase, along with any additional investments or redemptions you make. The unit price then fluctuates along with the underlying investments, and the value of your holdings become a function of the success of the fund's investment performance. All of the decisions on what, when and how much to buy or sell are made by the Investment Manager, so you should conduct careful research up front to choose a Fund with an investment strategy that suits your needs, which will be documented in their Product Disclosure Statement (PDS). So why choose a managed fund rather than doing it yourself?
1) Expertise of the managed fund team As with any profession, experience matters. A prime reason many investors choose managed funds rather than DIY to is have a dedicated investment professional managing their future prosperity, as they would have an accountant manage their taxes, or a lawyer managing their legal affairs. Fund managers are strictly regulated by ASIC and other oversight bodies, especially in the wake of the 2019 Royal Commission (3) which led to increased oversight and accountability for the financial services industry, and extra protections for investors. Reputable Funds should make it easy for investors to access details on the team that will be managing their investments, and objectively measure their short and long-term results.
2) Access and use of investment grade research While there are a plethora of research reports, tools, websites and other services that can provide share market information, sifting through available data and knowing how to apply what's relevant to your investment objectives is challenging for many investors. Fund managers usually have access to relevant research and maintain professional networks inside and outside their firms that support their investment objectives. APSEC's portfolio leads helped create the powerful share market research and trading platform HALO, which provides a competitive information edge for the fund. The platform is used by thousands of individual and institutional investors for up to date research on over 20,000 global equities, advanced portfolio management tools, and signals to help guide buying and selling decisions. Examples of HALO technical trading indicators used by the Atlantic Pacific Australian Equity Fund, October 2020.
3) Diversification and risk management Diversification is a fundamental principle of prudent investing - spreading your cash across a range of assets, asset classes, geographies etc to reduce the impact of any one investment moving against you. Australian investors would typically select from a mix of local shares, international shares, property, bonds, and cash in a balanced portfolio. There are also more complex products like equity derivatives (such as options or futures), Initial Product Offering (IPO's) share buy-backs or placements, etc, that may not be offered to, or cost-effective for individual investors. Managed funds usually have the resources to hold a larger number of stocks than individuals, and/or a range of other complementary products to help advance the Fund's investment strategies. Investors should take care to research the Fund's investment mandate and asset allocation, to ensure they align with your own investment goals, whether that's higher risks for higher returns, or more stable investments designed to preserve capital or pay a reliable income stream. The APAEF's long/short investment mandate allows us to invest in all of the products mentioned above, however in practice our short positions (i.e. Positions whereby we seek to profit from downward price movements) are mostly S&P/ASX 200 SPI futures contracts, designed to reduce risk and shelter the Fund from large capital drawdowns that the market can experience. This core focus on risk management has helped the APAEF smooth out the impacts of market volatility over the long run, while still generating above-market returns. As you can see in the risk statistics chart below, the largest drawdown the fund has experienced in more than 7 years since inception was -7.1% while the largest drawdown for the S&P/ASX 200 in the same time period was -26.7%. The Alpha value shows the outperformance of the Fund vs the benchmark S&P/ASX 200, annualised at 1.1% per annum since inception (net of all fees). Annualised returns since inception in June 2013 of the Fund are 9.3% p.a.* vs the S&P/ASX200 Accumulation Index returning 8.2% p.a. as at December 31, 2020.
*Source: ASPEC Investor Monthly Report, December 2020
4) The ability to start small and build holdings incrementally and consistently Managed funds allow you to start at a relatively lower threshold than some comparable investment options, like property or bonds, and then build the value of your holdings over time through ad-hoc or structured top-ups. The APAEF, for example has a current minimum investment amount of just $10,000, and a minimum additional investment amount of $1,000, making it accessible for most investors. In contrast, investing in property can require a minimum deposit of up to 20% of the property's value, as well as substantial on-costs like stamp duty, inspection, conveyancing and other legal fees, creating a substantial barrier to entry for new buyers.
5) Focussed investment Emotions and attitude play a large part in successfully navigating the share market, and can be a significant challenge for individuals in developing and sticking to a long-term investment plan. Aside from maintaining the discipline for continually researching the market and maintaining portfolio hygiene, high levels of media noise and information saturation can lead to emotive short term behaviours, such as the well-studied syndrome of performance chasing: - Fear of missing out on a stock that's climbing fast can cause you to buy in at a high point of the valuation, with limited upside potential. - Panic at a sudden drop in one of your shares can cause you to sell down at a low point, crystalising your losses with no possibility of a recovery in value. - Excitement caused by a stock you hold that's doing well can cause you buy more at a high point, rather than prudently taking some of the profits and rebalancing your holdings in line with your larger portfolio and investment objectives. Fund managers are paid to professionally manage your money in line with their stated investment mandate, replacing the emotions that can lead to irrational behaviours with systematic and disciplined decisions deigned to optimise long-term returns, rather than short-term reactions.
6) Time saving and ease of reporting Finally, a significant reason for choosing managed funds rather than DIY is the time involved in market research, portfolio management and administration tasks like tax reporting Researching stocks to trade can be both intellectually satisfying and potentially lucrative. However, maintaining this research across a balanced portfolio of 10-15 or more stocks, and potentially multiple portfolios can become a significant impost. Consider your own situation - if you like to be hands on and are happy to commit the time needed to do justice to your investments, DIY may suit. If, however, your work, family or other commitments don't leave enough scope for adequate research and portfolio management, a managed fund may be an attractive option. References: 1) ASX Australian Investor Study 2020: https://www2.asx.com.au/blog/australian-investor-study 2) ABS, Managed Funds, Australia: https://www.abs.gov.au/statistics/economy/finance/managed-funds-australia/latest-release 3) Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: https://www.royalcommission.gov.au/royal-commission-misconduct-banking-superannuation-and-financial-services-industry Disclaimer: *Fund Returns are prepared on a redemption unit price basis after management and performance fees inclusive of GST. Distributions are assumed to be re-invested at the mid unit price. Individual tax is not taken into account in deriving Fund Returns. In calculating the NTA, the Atlantic Pacific Australian Equity Fund ("Fund") asset values have been calculated using unaudited price and income estimates for the month being reported. Past performance is not indicative of future performance. APSEC Funds Management Pty Ltd ACN 152 440 723 (APSECFM) is a corporate authorised representative (CAR: 411859) of APSEC Compliance and Administration Pty Limited (AFSL 345 443 ACN 142 148 409). APSECFM is the investment manager of the Atlantic Pacific Australian Equity Fund (ARSN 158 861 155) (Fund). This document has been prepared and issued by APSECFM. Equity Trustees Limited ("Equity Trustees") (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity of the Fund. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX:EQT). A Product Disclosure Statement (PDS) for the Fund is available at www.eqt.com.au/insto and can be obtained by calling APSEC on +612 8356 9356. The PDS should be considered in deciding whether to acquire, or to continue to hold, an investment in the Fund. This material is for general information purposes only. It is not an offer or a recommendation to purchase or sell any security and is not intended to substitute for the Fund's PDS which will outline the risks involved and other relevant information. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Please note that past investment performance is not a reliable indicator of future investment performance. Equity Trustees do not express any view about the accuracy or completeness of information that is not prepared by Equity Trustees and no liability is accepted for any errors it may contain. The performance of the Fund or the repayment of any investor's capital is not guaranteed. This information has not been prepared taking into account your objectives, financial situation or particular needs. This document may contain information provided directly by third parties. To the maximum extent permitted by law, APSECFM excludes liability for material provided by third parties. APSECFM does not warrant that such information is accurate, reliable, complete or up-to-date, and to the fullest extent permitted by law, disclaims all liability of APSECFM and its associates. APSECFM believes that the information contained in this document is accurate when issued. To the maximum extent permitted by law, APSECFM excludes liability for any loss or damage arising as a result of reliance placed on the contents of this document. HALO is an analytical tool developed and owned by HALO Technologies Pty Ltd (ABN: 54 623 830 866) (HALO Tech) a Corporate Authorised Representative (CAR: 1261916) of Amalgamated Australian Investment Solutions Pty Ltd (ABN: 61 123 680 106. AFSL: 314 614) (AAIS) and a related party to ASPEC FM. HALO only contains factual and forecast information. Information presented or extracted from HALO should not be considered advice or a recommendation. Any forecast information relates to the intent, belief and current expectations of various analysts via Factset with respect to the performance of the respective stocks based on historical and projected performance data. You should not place undue reliance on these forward-looking statements. While all due care has been used in the preparation of the forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside of HALO Tech's or AAIS's control. If you would like more detail in relation to HALO please contact APSEC FM / or your Adviser. A copy of the privacy policy and FSG can be found here www.apsec.com.au. Funds operated by this manager: |
