Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 148

Unlisted managed funds fight back, even for SMSFs

In recent years, the growth of Listed Investment Companies (LICs) and Exchange Traded Funds (ETFs) has captured the headlines, making unlisted managed funds appear old-fashioned and outdated. This is despite the fact that Australian retail managed funds hold about $750 billion (according to Plan for Life), compared with about $30 billion in LICs (according to the ASX, up from about $15 billion in 2012) and about $22 billion in ETFs (according to BetaShares, up from about $5 billion in 2012).

Clearly, LICs and ETFs are making inroads, boosted from 1 July 2013 by the banning of commissions paid to advisers (on new investments) by providers of managed funds, and the increasing use of ASX-listed products. ETF growth has been driven by low costs and interesting product diversification, while LICs have benefited from high-profile managers with attractive deals heavily promoted by brokers. But managed funds still dominate portfolios overall.

What is the evidence managed funds are recovering?

The Investment Trends 2015 Investor Product Needs Report surveyed almost 10,000 investors in October 2015. It showed investors are finding it more difficult to identify investment opportunities in shares, but unlike previous times when they switched to cash and term deposits, now they are hunting for alternative ways to generate income and capital growth. They are turning back to professional fund managers, with 15% of investors saying they intend to invest in unlisted managed funds, compared with 12% two years ago. The gradual recovery in investible assets in managed funds since 2011 is shown below.

GH Picture1 250316

GH Picture1 250316

Investment Trends also reports an increase in self-directed activity, with ‘word-of-mouth’ and ‘online channels’ instigating investments into managed funds. This shows up in the increase in SMSFs using managed funds, shown below. Surprisingly, the share of people first learning about managed funds through ‘family and friends’ has risen from 14% to 27% since 2012, with 'advisers' falling from 42% to 27% over the same period.

GH Picture2 250316According to Plan for Life, the leading five providers of managed funds are BT (18.5% of total FUM), AMP (17.4%), CBA/CFS (15.8%), NAB/MLC (14.2%) and Macquarie (8.1%).

As further evidence, OneVue reported in its recently released SMSF asset allocation survey for December 2015 that, among its clients, investments in managed funds rose by 5.1% to 28.2% of total assets compared to March 2015, with listed shares falling by a similar amount. Investments in cash and term deposits also fell. OneVue noted that its SMSFs are advised by accountants and financial planners, and these portfolios differ from self-directed.

What type of funds are being used?

The types of managed funds (as well as ETFs and LICs) attracting more attention are:

  • international equities
  • active Australian equities
  • infrastructure
  • property
  • income funds, including bond funds and equity income.

Global funds have become more popular as investors realise the importance of diversifying beyond the ASX, which is dominated by a few banks, Telstra, BHP, Woolworths, Wesfarmers and Telstra. There was also a widespread expectation over 2015 that the Australian dollar would continue falling. While there remains a perception that active fees are too high, more SMSF trustees are turning to active managers because they are less familiar with stocks outside the ASX20.

Infrastructure, property and income funds are all benefitting from the low interest rates offered on cash and term deposits, and the perception of their defensive characteristics.

This final category was probably the year’s biggest surprise, especially in fixed interest. The global bond market is estimated at about USD100 trillion, far larger than the value of all listed companies on the world’s stock markets. Yet traditionally, fixed interest plays a minor role in most Australian self-directed allocations, including SMSFs. Tria Investment Partners reports all types of fixed interest did well in 2015, and “the data shows fixed income is continuing to receive healthy new flows, and more than any other single asset class.”

This is an asset category where managed funds have a much better range of alternatives than LICs (where fixed interest is negligible), although there are several bond and cash ETFs available.

GH Picture3 250316What role is mFunds playing in the managed fund recovery?

The ASX offers a ‘settlement service’ in managed funds, which allows an easier investment process than the painful, time-consuming process of filling out the offer document of a fund manager. Like ETFs and LICs, certain managed funds can be accessed on market in the same way as shares.

The mFunds service can best be described as a ‘work-in-progress’. It has been boosted recently by the addition of new fund managers such as Fidelity and J.P. Morgan, and the first major bank online broker, nabtrade, and now offers a broad range of managers and fund styles. But it can only be accessed through a participating broker, and the two largest retail online brokers, CommSec and E*Trade, are not participating to protect their own businesses (and those of related companies in the CBA and ANZ groups). The total amount invested through mFunds, according to the ASX Funds Monthly Update February 2016, was only $102 million spread across 149 funds. About half that is in fixed income, a healthy percentage. Nevertheless, mFunds is not yet material in the overall picture.

Each product type will have its place

It’s difficult to see a future in wealth management without a strong role for all three structures: managed funds, LICs and ETFs. Both LICs and ETFs are on a rapid growth path, and ETFs in particular will be boosted by ongoing cost focus and the (albeit slow) trend towards roboadvice.

But those who have written off managed funds should recognise it is not only the reigning champion in terms of FUM, but with massive fund manager support, hundreds of millions of capital invested in major platforms, adviser and bank branch distribution and wide product range, it will not relinquish its crown anytime soon.


Graham Hand is Editor of Cuffelinks.


Know your fund types and structures – an acronym odyssey

ETFs are the Marvel of listed galaxies, even with star WAR

Finding opportunities in listed global funds


Most viewed in recent weeks

Unexpected results in our retirement income survey

Who knew? With some surprise results, the Government is on unexpected firm ground in asking people to draw on all their assets in retirement, although the comments show what feisty and informed readers we have.

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Six COVID opportunist stocks prospering in adversity

Some high-quality companies have emerged even stronger since the onset of COVID and are well placed for outperformance. We call these the ‘COVID Opportunists’ as they are now dominating their specific sectors.

Latest Updates


10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?


Sean Fenton on marching to your own investment tune

Is it more difficult to find stocks to short in a rising market? What impact has central bank dominance had over stock selection? How do you combine income and growth in a portfolio? Where are the opportunities?


D’oh! DDO rules turn some funds into a punching bag

The Design and Distribution Obligations (DDO) come into effect in two weeks. They will change the way banks promote products, force some small funds to close to new members and push issues into the listed space.


Dividends, disruption and star performers in FY21 wrap

Company results in FY21 were generally good with some standout results from those thriving in tough conditions. We highlight the companies that delivered some of the best results and our future  expectations.

Fixed interest

Coles no longer happy with the status quo

It used to be Down, Down for prices but the new status quo is Down Down for emissions. Until now, the realm of ESG has been mainly fund managers as 'responsible investors', but companies are now pushing credentials.

Investment strategies

Seven factors driving growth in Managed Accounts

As Managed Accounts surge through $100 billion for the first time, the line between retail, wholesale and institutional capabilities and portfolios continues to blur. Lower costs help with best interest duties.


Reader Survey: home values in age pension asset test

Read our article on the family home in the age pension test, with the RBA Governor putting the onus on social security to address house prices and the OECD calling out wealthy pensioners. What is your view?



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.