Managed Funds vs Direct Investment

Many of our clients hold direct equities and we are able to deliver good advice and service to them for this part of their portfolios through our access to quantitative analysis on Australian shares from an independent specialist firm and qualitative research from a panel of 20 stockbrokers.

However, we believe that a diversified portfolio of carefully selected managed funds will give better returns with less risk than a comparable portfolio of direct investments.

This is because professional managers who are continually monitoring their fund portfolios every trading day stand a much better chance of making the right decisions on what securities to buy or sell and when to do so than individual investors, or even qualified financial planners. They also have easier access to share placements at discounted prices, new floats and portfolio management techniques such as stop-loss orders and hedging.

However, it is true to say that 75% of actively managed funds under-perform the index against which they are measured. This is because indices do not include transaction costs or management fees.

Therefore, our research process (which draws on the resources of two independent research firms as well as the extensive experience of Retirewell's two senior advisers) is crucial in identifying those actively managed funds which will add value over and above index returns, with below-average volatility.

When we construct portfolios using a long-term, strategic approach, we prefer to use actively-managed rather than index funds because index share funds by definition will deliver only average performance. While index funds are overweight in overvalued shares and are underweight in undervalued shares, the better actively managed funds adopt the opposite approach – which not only enhances returns but also reduces risk.

It should be noted that managed funds are also the only practical way to access some investment sectors such as alternative assets (see Risks, Rewards and Asset Allocation).

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General Advice Warning

The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Retirewell Financial Planning nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.