03 September 2020
3 min read

We’re well known for our superannuation products, but did you know we’ve been offering managed funds for over 30 years? We lay out the basics of how managed funds work and what you should consider before you invest.

Australian Ethical Investment is a funds management company with a history dating back to 1986. Ethical investment is at the core of what we do and we offer a range of ways for people to invest, including through managed funds. We often get asked what this means, so let’s start with the basics.

What is a managed fund?

Managed funds, also known as ‘unit trusts’, are investments where your money is pooled together with other investors. When you invest in a managed fund, you are issued a number of units in the fund where each unit represents an equal portion of the fund’s value. The fund manager buys and sells assets (such as shares, property or bonds) on behalf of the investors. Investors don’t own the underlying investments, but rather units in the fund.

Investors can buy and sell units in a managed fund similarly to the way people can buy and sell shares in a listed company. The value of each unit rises and falls with the value of the underlying assets in the managed fund, and is calculated daily.

All managed funds have a responsible entity who is the trustee and manager of the fund. In our case, Australian Ethical Investment is the responsible entity for all our managed funds. A responsible entity is required by law to act in the best interests of investors, even if it is to the detriment of the investment manager. That means if there are competing interests we will always put our managed fund investors before ourselves.

Why managed funds?

Managed funds give you access to a diversified range of assets as well as professional investment expertise. While there’s never any guarantee of investment performance, they can help you grow your capital as well as paying out regular income in the form of distributions (which can be reinvested, creating a compounding effect).

Whether or not managed funds are right for you will depend on your personal circumstances including your risk appetite and investment timeframe, so it’s best to review the relevant product disclosure statement for the fund you are interested in and speak to a financial planner before making the decision to invest.

What do managed funds invest in?

Australian Ethical Investment offers eight managed funds covering a range of asset classes including Australian shares, international shares and fixed interest (eg, company and government debt). Each managed fund has a dedicated portfolio manager who, along with the rest of our team of experienced investment professionals, invests in line with our Australian Ethical Charter. Each fund has a different risk level and investment timeframe. Here’s a breakdown of our funds.

Australian Shares Fund

This is our longest-running fund. It invests in the shares of Australian and New Zealand companies with good growth prospects. The fund has a bias towards smaller companies.

Emerging Companies Fund

This fund invests in the shares of smaller Australian and New Zealand companies.

Diversified Shares Fund

This fund invests in a diversified share portfolio of Australian and international companies.

Advocacy Fund

This fund invests in line with the Diversified Shares Fund but can also invest in companies that do not meet the Australian Ethical Charter from time to time for advocacy purposes. These advocacy investments do not materially affect the fund’s performance.

Balanced Fund

This fund invests in a wide range of asset classes to provide a diversified portfolio of ethical investments.

International Shares Fund

This fund invests in the shares of international companies.

Fixed Interest Fund

This fund invests primarily in Australian fixed interest securities (ie, the debt issued by Australian companies as well as federal and state governments) generating income with some capital growth potential over the medium to long term.

Income Fund

This fund aims to preserve capital while providing income in line with prevailing interest rates.

Any income earned on the assets within our managed funds is pooled and distributed to unitholders twice a year. Members can either receive this income as cash or reinvest it into the managed fund.

You can learn more about our managed funds here or check out our new educational tool Money101 here. This article was first published in issue 14 of Good Money magazine. You read the whole magazine online.

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