Active Managed Funds…Do they really work?

These days a lot of people seem pretty interested in Managed Funds, with their flashy marketing and slick offices…. but do they really offer real value for money?

A lot of the managed funds promote that they are “actively managing your capital”…. but are you getting a true to label experience. To find out, let’s look at the below analysis:

The is an extract from 3 large fund managers which operate in the Australian market place.  Each of the fund managers hold well over a $billion in management and are household names.  The exact above looks at their top 10 holdings.  

When I look at this the following questions come to mind:1. Are they significantly different?
2. If you hold for example 9% in WBC or 5% in WBC is this really going to make a material difference to the portfolio return as you still hold the position?

In most cases, managed funds hold well over 100 positions, but another question I ask is do they really need to hold this number of positions to be considered diversified?  Portfolio theory states with around 19 positions you are 95% diversified. Therefore when reviewing many of the managed fund portfolios, is it a case of diversifying your risk away and also diversifying away your return?

Below is a list of the top 20 companies by market cap in the Australian share market.  The interesting thing is when you look at the market weighting compared to the list above you are not really seeing a great deal of difference. They did however leave out CSL which only went up 58% in the past 2 years…I guess this was an “active” choice…. but outside this they look pretty similar!

So if you are thinking about a managed fund, make sure if you are selecting an “active” one that you are actually getting a true active fund – rather than simply an overpriced index fund!

Alternatively, we find with many of our clients that it may be more appropriate to build your own direct equity exposure if you are looking at this sector.  This, in some cases, can be far cheaper and you can also ensure that your assets are in fact more actively placed in line with your values set too.

Like most things in life, not all managed funds are the same and it is important that you seek professional guidance from a suitably qualified Financial Planner before jumping into this sector – and we would recommend our friendly expert team at AJ Financial Planning.