Understanding managed funds.
By pooling investors' money, managed funds allow you to invest in a more diverse range of assets.
Owning a small slice of some world-class assets.
A managed fund is a type of investment product - it gives you a hands-off way to invest in a wide range of assets. You contribute to a fund which is managed by a professional fund manager. Your contributions are pooled with contributions from other investors, so the fund has more money to invest.
With a larger amount of money, the fund can invest in assets that would be difficult or impossible for you to buy as an individual. For example, shares in an expensive world-leading tech company, office blocks in London, or Australian government bonds.
How do managed funds work?
Unlike buying shares directly, when you put money into a managed fund you buy units in the fund. The more money you invest in the fund, the more units you own (If you are a KiwiSaver member, you already invest in a managed fund).
The fund pools investors' money, then the fund managers decide how to invest that money and when to buy and sell. The fund owns those underlying investments on behalf of its investors.
Managed funds can be active or passive. A passive fund will follow the market automatically. For example, the fund might invest in the New Zealand Stock Exchange (NZX) Top 50 companies. As the value of that group of companies moves up and down, the value of your investment will move in tandem.
In contrast, the managers of an active fund will be watching the market, looking for opportunities to get better returns for investors – whether that's individual companies, specific industries or rapidly-growing areas of the world. Active funds generally charge higher fees than passive funds.
Funds grouped by level of risk.
Often managed funds are grouped by risk level. Defensive or Conservative funds have the lowest risk level, and the lowest likely level of return over the long term. Growth and Aggressive funds have the highest risk level and highest likely level of returns.
Most managed funds generally buy at least a little bit of all the major asset classes:
- Shares (you'll also see these described as 'equities')
- Alternative investments (such as hedge funds and infrastructure)
- Bonds (often listed under 'fixed interest')
Funds tend to be weighted or allocated more heavily into some types of assets.
For a low-risk conservative fund, the fund managers would invest a greater proportion of the money into lower-risk, lower-return assets such as cash and bonds, with only a small proportion of the money invested in higher-risk, higher-return assets like shares and property. In a growth fund, the managers would invest more into shares and property and less into cash and bonds. A balanced fund would find a middle ground.
There are also other types of managed funds that invest in specific markets or regions rather than being grouped by risk level. These may fit into your investment strategy; you should do your research and get advice.
Which fund is right for you?
The right risk level for you will depend on when you need your money and your personal tolerance for risk. Westpac offers a range of managed funds with our Active Series of trusts, including Conservative, Moderate, Balanced and Growth options. The Active Series is managed by BT Funds Management (NZ) Ltd, the specialist fund management arm of Westpac.
Things you should know.
Investments made in the Westpac Active Series do not represent bank deposits or other liabilities of Westpac Banking Corporation ABN 33 007 457 141, Westpac New Zealand Limited or other members of the Westpac Group of companies. They are subject to investment and other risks, including possible delays in payment of withdrawal amounts in some circumstances, and loss of investment value, including principal invested. None of BT Funds Management (NZ) Limited (as manager), any member of the Westpac Group of companies, The New Zealand Guardian Trust Company Limited (as supervisor), or any director or nominee of any of those entities, or any other person guarantees the Westpac Active Series' performance, returns or repayment of capital.
You can get a copy of the Westpac Active Series Product Disclosure Statement here or by contacting any Westpac branch or call 0508 972 254 or from overseas +64 9 375 9978 (international toll charges apply).
The material on this webpage is provided for information purposes only and is not a recommendation or opinion in relation to investments.
Disclosure statements under the Financial Advisers Act are available free of charge on request from Westpac or your Westpac Financial Adviser.