Take the plunge
There’s a faster and more transparent way to invest in managed funds
Q What is an mFund?
It is an unlisted managed fund settled under ASX operating rules and through the mFund settlement service. You buy units in a managed fund from the fund’s manager via your online broker. It looks and feels as if you are buying on market, even though you buy from the fund’s manager, and similar rules apply to the buy/sell transaction and settlement.
Taking a step back, a managed fund pools investors’ money and is managed by professional brokers or investment managers. The asset allocation, investment decisions, timing and transacting of the fund are managed by the fund, in compliance with the investment mandate. In effect the investor is outsourcing the investment.
The mFund differs from other managed investments because you can see the buy/ sell spread and place the order directly from your screen and see it settle. You don’t need a financial adviser or wrap, as you buy it direct via your online broker.
STEVE MICKENBECKER
Q What are the benefits of mFunds?
They have the same advantages as other managed funds. You pool funds with other investors, giving the critical mass to diversify by industry and individual investment. You put the management of the investment into the hands of professionals, rather than making the investment decisions yourself. By choosing a fund based on the investment mandate, you direct the investment style and sector exposure and by investing in multiple funds you can get a mix of exposures to balance your return expectations and risk.
The advantage of mFunds over other managed funds is ease of access. You can access mFunds through online brokers, which means they are on the same platform as your direct share investments. You can avoid the cost of going through a wrap or an adviser and buy direct. The buy/sell spread is disclosed. Settlement is consistent and timely, under ASX rules. In all it’s a faster, more convenient and more transparent system for buying and selling.
STEVE MICKENBECKER
Q What are the risks?
If we were to put our whole portfolio into one stock we are betting that it will outperform the market or at least provide an acceptable level of return. But if something goes wrong, the investment could be lost or perform poorly.
Managed funds mitigate this risk by diversification and the investment mandate offers another layer of comfort against unacceptable risk. But managed investments too can underperform. Targeted sectors could underperform and key investment managers could move on.
mFunds carry this same risk. Settlement risks are mitigated by the ASX system and compliance but the ongoing investment risks do not change. Arguably it may be easier to exit on emergence of a downgrade but this is yet to be tested and there are no guarantees – exit might not be feasible or the spread could be prohibitive. There is no greater risk than for managed funds and likely less risk than for a small, less-diversified portfolio of direct shares.
STEVE MICKENBECKER
Q Do all funds have an mFund version?
While having experienced reasonable growth, the ASX’s mFund universe currently consists of just over 200 funds. This means that a majority of the unlisted managed funds active in the market today do not have an mFund version. The reason for this comes down to whether an underlying investment manager’s distribution strategy includes a listed channel. Further, this is an increasingly complex decision as managers now also have to weigh up whether to adopt the mFund path as opposed to other ASX options such as exchange traded funds, listed investment companies or listed investment trusts. PETER GREEN
Q How can I find out what mFunds are available?
The ASX mFund web page hosts all relevant information about the service, including the funds available, the asset class in which the funds invest and general fund information such as prices, fees, performance and minimum investment amount.
There are currently 210 funds available on mFund via more than 70 fund managers such as Platinum, Macquarie, Fidelity, PIMCO and Aberdeen.
The full list of funds and fund managers can be viewed at asx.com.au/mfund/index.htm. ORAN D’ARCY
Q What fees can I expect to pay?
mFunds incur the same investment fee as the underlying managed fund. This varies widely depending on asset class (eg, cash is lower than equities), management style (active is higher than passive) and sector (emerging markets are higher than Australian equities). The range can go from around 0.3% to above 1.5%.
There will still be a buy/sell spread but not an entry or exit fee.
With mFunds you will be up for brokerage but could be saving on wrap fees. You could still have an adviser but have the opportunity to DIY and save that cost also.
So you would expect the fees to be higher than direct shares and ETFs but, because of the transactional savings, lower than managed funds. Of course, you are also wrapping the ongoing investment management into the service.
STEVE MICKENBECKER
Q What sort of returns can you expect?
The returns of an mFund will line up with the return profile of the underlying investment capability and the asset class to which they belong. Typically, an mFund’s offer document should highlight the investment managers’ return expectations for each product. Further, as most mFunds are simply listed versions of a pre-existing unlisted fund, investors should be able to verify the performance track record of the underlying fund, which can be used as a guide for future return expectations. However, past performance may not be an indicator of future performance.
PETER GREEN
Q Who do mFunds suit and what is their role in a diversified portfolio?
mFunds suit investors who accept that professional management of at least part of their portfolio can add to their long-term returns. This can be through greater success in picking winners or stronger management of the risk/return equation. Even the investor who simply values diversification can benefit.
In a portfolio, managed funds, including mFunds, can form part of the mix with direct shares, ETFs, cash, fixed interest, property or any other form of investment. Sector-specific managed funds in the portfolio can work for the investor seeking exposure to more exotic investments, and a mix of core investments and the exotic can be achieved.
mFunds’ transactional ease and predictability give an advantage over managed funds for the investor who might wish to actively manage sectoral exposures.
Self-managed super funds fit the description and are likely the early adopters. STEVE MICKENBECKER
Q What should I consider when comparing mFunds?
Ultimately, an mFund is just another means to gaining access to an underlying professionally managed investment capability. The primary consideration for investors should then be to critically assess the ability of the underlying strategy to consistently meet its investment objectives as well as the risks that are taken to deliver these. As with all such decisions, investors should also consider the role such an investment can play within a wider portfolio. At a product level, factors such as fees and liquidity should also be carefully considered.
PETER GREEN
Q How do I invest in an mFund?
Traditionally, in order to invest in an unlisted managed fund an investor had to transact directly with the fund manager by filling out paper application forms.
mFund provides a modern way for investors to buy, hold and sell units in unlisted managed funds through their broker, in a process similar to buying and selling shares. Investors can see their mFund units through their holder identification number (HIN) alongside their other investments such as shares and ETFs.
Using their broker account, investors can buy units in several different funds with the broker’s application form requirement being fulfilled once. When the broker account set-up is completed, no further application forms are required to buy and sell.
At present, 19 brokers are accredited to the service. The complete list can be found at asx.com.au/mfund/mfund-partners. htm#tabs-218.
ORAN D’ARCY
For more details on how much you need to invest in mFunds and what happens when you want to sell, visit moneymag.com.au/mfunds.
At a product level, factors such as fees and liquidity should be carefully considered