Putting your money into a managed fund, rather than investing in direct shares, can streamline your finances and give you more time to focus on other things. However, choosing the right fund can be a tricky process.
More often than not, investors pick a fund based on an advertisement they’ve seen or because it’s been recommended by a friend – but how do you know if that fund is right for you?
Let’s look at a few key features of managed funds.
A managed fund provides investors with:
- A professional investment manager who invests on your behalf for a fee. A managed fund is ideal for those who are time poor and/or have little interest or inclination to make their own investment decisions.
- Access to a range of investment opportunities not always available to retail investors.
- Detailed reports for tax purposes, which can save you a lot of time and hassle.
It’s not always about past performance
Back to the all-important question about how to pick the right managed fund.
It seems the default criteria investors base their decision on, is past performance of the fund. If a fund has historically enjoyed high returns and/or yield, is it safe to assume it will continue to do so?
Markets are cyclical and they have ups and downs over the short-term. They also have market corrections and respond to macro-economic events. So, when looking at past performance, be very careful! It’s not as straightforward as it seems. Plus, there are other areas to consider before placing your hard earned cash into someone else’s hands.
The five key considerations
At Lincoln, we believe there are five key areas you need to consider before making a decision about which managed fund is right for you.
- Does the objective of the fund align with your personal investment objective?
The first consideration needs to focus on why you are investing i.e. what is your investment objective?
Are you investing to achieve long-term capital appreciation (growth) or are you chasing regular earnings to help cover your living expenses (income)?
Make sure you know what the fund is looking to achieve for its investors and the standard against which the fund’s performance is measured (the fund’s benchmark). Then, take a look at the long-term fund performance. Does the fund have a track record of delivering above its benchmark according to its intended goal? This will indicate if your fund manager is meeting the objective.
- Do you understand which assets the fund is invested in?
As the fund manager will buy and sell shares or other assets on your behalf, you need to understand how he/she makes the decisions on which ‘underlying investments’ are right for the fund. This is often referred to as the investment strategy or approach. For example, both Lincoln managed funds select investments according to our Financial Health Methodology created through rigorous academic research and ongoing validation. (And, just quietly; it’s a highly successful approach too!).
Then, take a look at the asset allocation and relative level of risk. Knowing which assets the fund invests in, relative to the fund’s (and your) objective and level of risk you are exposed to, will ensure you select the ‘risk versus return trade-off’ you feel comfortable with. You should be aware that all investments have a level of risk. It’s important to choose a level of risk that doesn’t keep you awake at night while your money is at work.
- Do you understand the fund’s terms and conditions?
Make sure you read the fine print.
Find out if the fund has a minimum time frame for investment, whether you can access your money if and when you need to, and if there are any entry or exit fees. Are there any other fees you need to be aware of?
- Is the fund team reputable?
Find out as much as you can about the team running your managed fund such as how long they have been in business, and whether they have a solid reputation in the marketplace.
Make sure the portfolio managers are accessible as you’ll want to make sure they’re available to answer your questions.
You should also check whether the fund outsources some of its services. If so, are they using trusted organisations? You need to be confident in all companies that are involved with the fund. Remember, they are all working for you!
- Does the team believe in the fund?
Finally, does the fund’s team put their own money where their mouth is?
There’s nothing better than your fund team having skin in the game and knowing they have as much invested in the fund’s success as you do.
Most of the above information will be available via the fund’s Product Disclosure Statement (PDS), Reference Guide (RG) and the Financial Services Guide (FSG). The PDS and RG are regulated documents that outline the features, benefits and risks of the fund. The FSG is also a regulated document that provides details about the company offering the fund, the services and how they are remunerated.
And, for anyone wanting to know if our team has skin in the game; our Managing Director and Chief Investment Officer, Tim Lincoln, is a significant investor. So hands down, not only do our funds pass all these key considerations, we’ve put our own money where we know it will be rewarded.
At Lincoln, we’re proud of our two managed funds – Lincoln’s Australian Growth Fund and Australian Income Fund. They’re jam-packed full of the highest quality stocks on the ASX. We call them Star Stocks.
If you’d like more information, call us on 1300 676 333 or request information and we’ll contact you.
Discover which managed fund is right for you…
With a focus on capital appreciation, this managed fund invests in equally weighted Stock Doctor Star Growth Stocks. Renowned for their outstanding performance, Star Growth stocks represent a portfolio of companies with exceptional financial health and strong growth prospects.
This managed fund is designed for those seeking a reliable and dependable income stream. The portfolio has been constructed from the most financially healthy and highest yielding Australian equities, Stock Doctor Star Income Stocks and hybrid securities.
Important: Lincoln Indicators Pty Limited ABN 23 006 715 573, as Corporate Authorised Representative of Lincoln Financial Group Pty Ltd ABN 70 609 751 966, AFSL 483167. This blog may contain general financial product advice. It has been prepared without taking account of your personal circumstances (including your objectives, financial situation or needs) and you should therefore consider its appropriateness in light of your objectives, financial situation and needs, before acting on it. You should read and consider the Product Disclosure Statement (PDS), Reference Guide (RG)for the Funds and our Financial Services Guide (FSG), which sets out key information about the services we provide. These documents are available at www.lincolnindicators.com.au.