Why diversified managed funds deserve a place in client portfolios

21 March 2024
| By Allan Gray |
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The number of advisers using managed accounts has exploded in recent years, often at the expense of diversified managed funds. But diversified funds deserve a place in almost any multi-asset portfolio, held either within or alongside a managed account, according to Allan Gray. 

In a conversation on Money Management’s Meet the Manager series, Chris Hestelow, investment specialist at Allan Gray, explained why.  

On first glance, Hestelow said the two types of portfolios may initially seem similar in terms of client outcomes, but there are differences around their structure and research methods.

He said: “In terms of why advisers are using them and what they’re trying to achieve for their end client, both diversified managed funds and diversified managed accounts are really very similar. Both products allow an adviser to effectively outsource investment selection and portfolio management to an external party. 

“Advisers can free up efficiencies in their business and potentially get back some time. Ultimately, advisers want strong long-term returns for their clients with risks appropriately managed.”

However, it is important to remember that the two types of products do differ on a structural level.

“Managed accounts give the end client beneficial ownership of the underlying assets. For clients who want that level of visibility and want to see those transactions, that can be seen as a benefit. 

“With customised managed accounts, those practices that want to retain some input in the decision-making process can also do so, crucially without the need to complete a record of advice for clients before making changes to the investment portfolio. With a managed fund, the client owns units in the fund and transaction exposure is generally more limited.”

One area where managed funds have the edge is comparability.  

“With managed funds, they’re easier to compare. They have one net performance outcome and one fee structure that all the clients get. It makes it easier for advisers to do due diligence on the different offerings available, it’s a more efficient way for them to compare products on a like-for-like basis thanks to the consistencies,” Hestelow said.

“In managed accounts, they are essentially a different product across each of these different platforms, so there may be different investment management fees, different trading rules and different investment performance outcomes for clients. 

Diversified managed funds also have a broader range of investment options available to them. 

“Managed funds can use a range of derivatives to help control risk at the portfolio level, including futures, forwards and options,” Hestelow said. 

“This is essential when markets are expensive. Derivatives enable the manager to invest in individual securities that show good value, while hedging away the risk that comes from a market that is trading high in aggregate. Although managed accounts can invest in underlying managed funds that can use these investment tools, they can’t hold them directly to manage these risks at a portfolio level. Advisers will know that protecting the downside is the key to happy clients.”

Allan Gray Australia runs a Balanced Fund which is a multi-asset fund investing in equities, fixed income and cash as well as holding the ability to use forwards and futures.

 

Disclaimer

Intended for advisers only. Allan Gray Australia Pty Limited ABN 48 112 316 168, AFSL No. 298487. Equity Trustees Limited ABN 46 004 031 298, AFSL 240975 is the responsible entity and issuer of units in the Allan Gray funds. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).

This information is of a general nature, doesn’t take into account the objectives, financial situation or needs of any individual and may not be appropriate for you or your client. Neither Allan Gray, Equity Trustees nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Read the relevant disclosure documents before making any investment decision. Target Market Determinations (TMDs) for the Allan Gray products can be found at allangray.com.au/PDS-TMD-documents. Each TMD sets out who an investment in the relevant Allan Gray product might be appropriate for and the circumstances that trigger a review of the TMD. Please read the Fund’s most recent Product Disclosure Statement and Information Booklet (together PDS) before deciding to invest in the Funds. A copy is available from https://www.allangray.com.au/b/forms-documents. Past performance is not a reliable indicator of future performance, and there are risks with any investment.

Our commentary on securities demonstrates the reasons for decisions made on behalf of the Allan Gray funds and our clients at the time of recording, which may change. We have tried to ensure information included is accurate in all material respects but cannot provide any guarantee that it is.

Allan Gray
Allan Gray

At Allan Gray, our investment philosophy is simple: to take a contrarian approach, apply it consistently and invest for ...

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