If you don’t have the time, patience, experience and education required to research and choose an investment, maybe you should consider managed funds as an option.
There are lots of different ways to do this, but since most people don’t have the hundreds of thousands of dollars required to invest directly with a fund manager, a common approach is to use a specific investment platform which grants access to these managers.
The great thing about using a platform is that they usually come with reporting functions, which help you when it comes to providing tax returns, determining what your Capital Gains Tax liabilities might be, and consolidating investment return reports into one easy place.
Styles of Investing
There are many successful ways of investing, and though this article cannot do them all justice. However, some of the elements that make up a style of investing include:
- Active management
- Passive management
- Growth style investing
- Value style investing
- Small Cap, Mid Cap and Large Cap companies.
Having an investment management system usually means a team of researchers are always on the lookout for good investment opportunities that fit with the theme of their investment style. The idea is that given the constant monitoring and research, when an investment becomes particularly compelling to purchase (or sell) an active decision will be made to either increase or decrease the holding of a particular investment. Active management is generally more expensive than a passively managed investment.
Also known as index investing, a passively managed fund attempts to mirror a particular index (ie ASX200, FTSE100 etc.) and take the human element out of the equation. This style of investing sticks to an efficient market theory, where all information that is and should be known about an investment is available, and that the price of an investment reflects its actual value
Growth Style Investing
Managers who have a preference for growth style investing are typically looking for companies or investments with a strong potential to get larger in a very short period of time. These are often companies with a high profit margins, lots of innovation and often a lot of the companies returns are ploughed back into the company to allow it to expand much more rapidly.
Value Style Investing
Conversely, a value style investment may focus on purchasing strong companies. These companies have good balance sheets, and generally provide a higher dividend yield to their investors. A value style investor will perform some form of fundamental analysis in order to determine the attractiveness of the investment, and if attractive enough will invest accordingly.
Market capitalization (or cap for short) can be defined as the size of a company in its respective market.
An investor who likes the idea of investing in companies when they are small are often looking towards the fact that these firms tend to have greater growth opportunities and bring innovation to the market. However, as these companies are small, they often lack the resources of a larger company and may not be able to weather a decline in demand for their products. Small cap investing tends to have a larger risk associated with investing than large cap investing.
Large cap companies have usually been around for a very long period of time. With a strong brand and image, these companies are not usually likely to be forced out of business but due to the market presence they have they may not be able to grow as rapidly as they once did. Often, large cap companies are found to have stronger dividend yields than small cap companies.
As can be seen, there are a number of factors to consider when using managed funds, and the least important of these should be the cost of the management style you are comfortable with.
We have a range of investments that we can consider using when it comes to achieving your goals, with exposure to each of the above-mentioned styles in various combinations.