|
MIND THE
MARKETS
www.mindthemarkets.com.au
Some notes on Managed
Investment Funds (MIFs)
Types of MIFs
There are many different types of
MIFS willing to manage your money for you. Australian MIF's manage billions of dollars
of other people's money. These funds can be categorised by a number of different
criteria.
Placing money in an MIFs
is not risk free.
Fund Categories
Type: Unit Trusts — Superannuation Funds — Pension Funds
Risk: Defensive — Moderate — Balanced — Growth — Aggressive
Strategy: Multi-sector — Cash — Fixed Interest — Mortgages — Property —
Shares
Growth Funds Funds which specialise in companies whose potential in the short-to-medium
term is in an increasing share price rather than in the payment of dividends. These
companies tend to either be young and
• entering a mature market sector with a unique product line, or
• be in a relatively new market sector (such as Hi-tech or Bio-genetics for
example)
Value Funds Funds which specialise in companies whose potential in the short-to-medium
term is in an increasing dividends more that a dramatic growth in share-price.
Active Funds (Actively Managed Funds) These funds are managed actively, meaning
that the fund managers actively try to pick stocks which are likely to increase in
capital value or dividend yield better that their competitors. This 'stock-picking'
is done primarily on the basis of fundamental research, which is expensive.
Passive Funds (Passively Managed Funds). These funds are built
around particular 'automatic' or informationless investment strategies. Index funds
tend to be passive. The automatic nature of this management SHOULD mean that management
fees are low when compared to those attracted to Actively Managed Funds.
Index Funds Index funds tract the (performance of) a particular index (eg
ASX-50, ASX-200, ASX-300). Index funds are essentially managed automatically i.e.
stocks that make up an index are held in direct proportion to their contribution
to the index. Profits are generated by dividends and the overall capital increase
in the companies in the index. See Passive Funds.
Sector Funds (eg Property, Retail, Mining)
Capitalisation Funds (eg Small-Capitalisation [Small-Caps], Micrp.
Caps)
Hedge Funds Funds which use a variety of instruments (such as shares, bonds,
futures, options warrents) and techniques, including short-selling to attempt to
maximise profits even when the broad market is in decline.
Advantages
of investing through Managed Funds
• Time efficiency - leaving you free to generate the funds to invest in other ways.
• Expertise - these funds employ experts of various types which undertake
a breadth and depth of research not possible by any individual.
• Reltively large captialisation means they are able to hold a more diverse range of stocks in proportions appropriate to type of fund.
• Able to trade more flexibly such as off-market trades, and with lower transaction
costs which can be used to offset their fees.
Disadvantages
of investing through Managed Funds
• Many Funds don't last for an extended
period of time, making assessment of their relative performances difficult. This
problem is called survivor bias. A partial alleviation of this is provided
by Morningstar Reseach Pty Ltd. They measure the average performance of a fund category
and produce an index based on the data collected. The Australian's Wealth
supplement (weekly on a Wednesday) contains these weightings.
• You pay the management irrespective of whether they make a profit or not.
You also pay for the infrastructure, real-estate, research, "good-will"
etc.
• If a fund makes a wrong decision in the market, it is hard for them to reverse
it quickly and it is usually costly.
• It is often quite hard for you to determine actually what are a Fund's Fees
and Charges. Recent legislation may force the funds to be more transparent on this
issue. May. They don't want you to know almost all have have resisted disclosure
all along.
• You don't learn about managing money by paying someone else to do it for you.
• No-one will look after your money as carefully as you. It is simply not possible
for a professional manager to be as vigilant as you would want them to be.
|