Is a managed fund right for you?

SSL in the money

Gillian Bernard

Wednesday, September 26, 2012    

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A managed fund is essentially a professionally administered investment vehicle whereby the funds of several investors are pooled together in order to invest in various securities. This is fundamentally the main benefit of a managed fund. The sheer buying strength of pooling funds together offers the average investor access to numerous investment opportunities that they may not have been able to obtain otherwise.

The value of the fund is measured by its Net Asset Value (NAV). This is calculated by dividing the total value of holdings, using the closing price of the various positions held by the fund, less its liabilities (which includes fees, losses and taxes) by the total number of outstanding shares.

Funds vary based on what they invest in. The type of securities that the fund manager includes in the fund's portfolio will depend on the objectives outlined in the prospectus. Choosing the right one for you will depend on your predetermined investment needs and risk profile.

This leads me to the next reason why a managed fund may be suitable for your investment portfolio — diversification. A diverse portfolio reduces the impact of any fluctuations in an investment's market value. By investing in several different types of investments across asset classes, industries and geographic locations, a managed fund significantly reduces the risks associated. An individual investor who may only be able to spread their funds across a handful of investments would naturally be more exposed and suffer greater losses should the value of one of those investments fluctuate.

For several investors who have a full-time job, and have neither the time to monitor markets nor the in-depth financial knowledge of the areas in which they wish to invest, the feature of professional management is appealing. Fund managers are typically experienced and qualified professionals whose main function is to stay abreast of market happenings and make timely investment decisions on behalf of its investors.

Another benefit is that of convenience. Investing generally involves paperwork and ensuring collection of income, rent or dividends, taxation etc. These day to day functions are handled by the fund manager who will then report to you periodically on the performance of the fund.

Reduced trading costs are another highlight. While managed funds usually have a management fee associated, which we will examine shortly, the overall cost of investing in many different securities is drastically lowered when you invest in a managed fund. Since the fund manager is buying and selling large amounts of investments on a regular basis, they can negotiate much lower transaction costs than a private investor.

As mentioned, mutual funds carry expenses which are relayed to the investors. These include distribution charges, or sales charges associated with the marketing and distribution of the fund's shares, along with services to its investors. This may be in the form of a front-end load, which is a type of commission paid by the investor upon initial investment, or it may be a back-end or deferred sales charge, which is paid by the investor when shares are redeemed. Another expense is the management fee which is paid to the fund manager and is typically expressed as a percentage of the fund's annual return.

These recurring fees are included in a fund's total expense ratio. It is important to understand the fees associated with the fund that you are interested in and choosing funds with low expense ratios will help raise the potential returns you earn.

An important factor to consider when investing in a managed fund is the accreditation of the fund or its management. A fund's performance history and reputability of management are solid indicators that may help you to decide on which managed fund to invest in.

An example of stable and strong performing funds are those offered by CI Investments, one of Canada's most trusted investment management firms since 1965. With more than US$75 billion in assets under management, CI offers mutual funds invested in a broad range of securities and asset classes and are denominated in both USD and CAD.

If you are an investor that is seeking growth with a moderate risk appetite then you may wish to consider the CI American Value Fund which invests primarily in equity and equity-related securities of US companies. The fund's main objective is to provide superior returns with a limited level of risk by investing in a diversified portfolio of high quality undervalued companies. With a NAV of US$10.82 as at August 31, 2012 the funds annual return is 12.08 per cent as at same date.

However, if you are seeking a fund with a slightly lower amount of risk exposure and is invested primarily in fixed income, you may examine Signature High Income Corporate Class whose NAV and annual return as at August 31, 2012 is US$23.46 and 10.11 per cent respectively. This fund's objective is to generate a high level of income and long-term capital growth.

These are brief illustrations of the variety of funds offered by CI. As discussed, managed funds are a simplified means of true portfolio diversification which helps to take the guess work out of investing. They are suitable for both the savvy and unsavvy investor. In order to determine which fund is best suited for you, it is important to seek the advice of your Wealth Advisor who can assist you in choosing the ideal fund for your objectives.

Gillian Bernard is a Wealth Advisor at Stocks & Securities Limited and can be contacted via



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