Fins Asset Essay Example

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Most investors are likely familiar with the fund star ratings found in newspapers, but it's common for them to lack an understanding of the ratings' true significance. Morningstar calculates its fund ratings on a monthly basis, taking into account a 40:60 split between the rolling three-year and five-year performance. This split aims to acknowledge consistent performance and reduce the impact of short-term fluctuations. To ensure comparability, Morningstar utilizes categories to group funds with similar styles and gauge a fund's Morningstar Rating relative to others in its peer group.

Following a Bell Curve, the top 10% of funds rated are given a Morningstar Rating of 5 stars, the next 22.5% are given 4 stars, and the next 35% of funds are given 3 stars. Standard ;amp; Poor’s ratings, on the other hand, are arguably more meaningful because they incorporate both qualitative and quantitative elements. Standard ;amp; Poor’s ratings involve research and analysis through interviews, and aim to give investors an absolute assessment of whether a fund meets certain minimum standards and a relative comparison to its peers.

Researchers assign a 4 or 5 star rating to funds that consistently achieve better risk-adjusted returns, net of fees, compared to relevant investment objectives and peers. This rating is determined by Standard ;amp; Poor's level of conviction. In addition, Standard & Poor's assesses funds within specific asset classes using a peer group approach. Their qualitative methodology enables them to provide ratings that take into account future performance, recognizing the significance of an investment manager's track record while acknowledging that past performance does not guarantee future results.

When researching managed funds, it is crucial to consider both

entry fees and management fees as they can have a significant impact on long-term returns. Many managed funds impose entry fees ranging from 4% to 5% on initial investments and subsequent contributions. However, if you opt for a direct investment broker, you can receive a complete rebate of the entry fee, enabling your money to begin generating returns immediately.

To minimize risk, it is advisable to develop an asset allocation plan that diversifies investments across different assets in various sectors of the financial market. This helps prevent concentration of all investments in one place and reduces reliance solely on the returns generated by a single fund, investment, or asset category for future financial stability.

MONITORING YOUR FUNDS

It is important to regularly assess the performance of the chosen funds and keep track of any updates from Standard & Poor’s and Morningstar.

By subscribing to online investment newsletters, you can easily stay updated on any changes in fund ratings. If there are modifications in the fund's investment managers or risk management issues, Morningstar or Standard ;amp; Poor's may temporarily halt or lower the fund rating. It is important to closely monitor the situation and decide whether you want to continue investing in that particular fund if you have investments in it.

Source: http://www.ozinvestor.com.au/articles/2009/oct/001.html Elizabeth Moran discusses the issue with managed funds on June 18, 2012.

PORTFOLIO POINT: In order to reduce losses, it is recommended that investors sell units in managed funds that are consistently or significantly declining. Macquarie Group has recently made the decision to close a number of its managed funds, such as Macquarie Property Securities Trust,

Macquarie Balanced Fund, and Macquarie Small Companies Growth Trust. This article examines the effects of these closures and provides recommendations for enhancing one's portfolio.

Despite enabling the investment community to analyze and enhance portfolios for minimizing losses, Macquarie has notified clients about the situation. The fund's diminished size is anticipated to result in increased expenses and potentially reduced returns for unit holders due to rising investor redemptions. Consequently, Macquarie has concluded that terminating the fund would be beneficial for unit holders.

Investors in managed funds should exercise caution and avoid being the last person to exit. It is crucial to closely monitor the fund's size and redeem units if it consistently or rapidly decreases, thus preventing termination by managers. The liquidity of investments underlying a managed fund plays a vital role in determining their ease and speed of sale without any loss in value.

I find it fascinating that one of the Macquarie funds being terminated was a properties securities trust. If you need to sell quickly, property can be particularly troublesome, especially if it involves direct property or if the managed funds hold a significant portion of a listed property company. This becomes more critical if there is an increase in redemption requests, likely due to under-performance. Consider the Queensland tropical island resorts affected by the high Australian dollar or the impact of US residential property or Irish commercial property.

Due to a significant market decline, sellers are struggling to find buyers for their assets. It is recommended to avoid property managed funds as they may have difficulty converting investments into cash quickly. Although these funds may offer attractive profits,

it is important to assess if they adequately compensate for potential lack of liquidity or capital loss. Managed funds are suitable for investors with smaller portfolios like Macquarie funds, which require a minimum investment of $20,000. Specialized bond funds usually have minimum investments ranging from $5,000 to $50,000.

There are several issues associated with managed funds, including the lack of control over choosing underlying investments as they can be tied to an index. Investors also have no control over when to take profits or losses, preventing them from meeting their personal taxation requirements. Additionally, investors have no say in terminating the fund and gains and losses are concealed behind a daily unit price. It is important to note that investors are exposed not only to the fund manager but also to the underlying investments. The size and type of investment can also impact the style of investment for managed funds. Therefore, it is advisable to seek large and well-known managed fund companies if one prefers this investment style.

PIMCO and Blackrock are two major international competitors in the investment market. While PIMCO requires a minimum investment of $5,000 for certain retail funds, Blackrock is another option worth considering. It is crucial to choose large individual funds and evaluate the liquidity of the underlying investments.

In my opinion, direct investment is the most favorable choice as it eliminates exposure to fund dynamics such as the manager's decisions, other investors' choices, and winding up expenses. Government bonds can be purchased for as low as $1,000, and ASX-listed senior, subordinated debt, and hybrids have no specified minimum transaction amounts.

If you are interested in

gaining exposure to the property market, one option is to invest in bonds issued by companies such as Stockland, Mirvac, and Westfield. These bonds offer guaranteed returns and hold a strong position within their respective capital structures. Table 1 presents four property bonds currently available, with three of them being offered in $50,000 face value parcels. The Mirvac, Stockland, and Leighton bonds are all fixed-rate senior debt and are trading at a premium above their initial issue price of $100. The yield to maturity (YTM) varies from 5.63% for Stockland to 6% for Leightons. The running yields for all three bonds are higher due to their larger coupon payments, which become particularly valuable when interest rates decrease.

The Genworth security is subordinated debt and offers a floating rate coupon with an attractive 7.88% YTM (based on current swap curves) and an 8.98% running yield. Genworth is an Australian mortgage insurer and, as such, is considered a “property play”. Read more at EurekaReport: http://www.eurekareport.com.au/article/2012/6/18/portfolio-construction/problem-managed-funds#ixzz231Ul0bdu

1992 Feature Article - Managed Funds in Australia

This article was published in Australian Economic Indicators February 1992 issue on 3 February 1992.

Introduction

In Australia, managed funds have grown in the past decade to cater to both small and large investors. This growth has coincided with changes in the financial system brought about by deregulation. The ABS and the Insurance and Superannuation Commission have provided statistics on the assets of specific categories of managed funds, but no overall estimate of consolidated assets has been made. This article introduces the first estimates from the ABS on the size and growth of consolidated assets in Australian managed funds.

A managed fund is a financial

vehicle that combines money from investors to invest in various assets, both financial and non-financial. The types of managed funds mentioned in this article are Statutory Funds of Life Insurance Offices, Superannuation Funds and Approved Deposit Funds, Public Unit Trusts, Cash Management Trusts, Common Funds, and Friendly Societies. Each category of managed funds is defined at the end of this article, with assets categorized according to the specific fund type.

To determine the total assets of managed funds in Australia, it is crucial to eliminate any overlapping investments between different fund types. This includes excluding investments made by superannuation funds in public unit trusts when calculating the combined assets of superannuation funds. Table 1 displays an estimate of the consolidated and unconsolidated assets of managed funds categorized by fund type as of June 30, 1991. TABLE 1. ASSETS OF MANAGED FUNDS BY TYPE OF FUND - CONSOLIDATED AND UNCONSOLIDATED AS AT 30 JUNE 1991, $ MILLION | | Assets |

Type of Fund| Total| Elimination| Consolidation|
| Statutory Funds of Life offices (a)| | | |
- Superannuation Business (b)| 59,018| 3,391| 55,627|
- Ordinary Business| 35,314| 1,615| 33,699|
Superannuation ;amp; Approved Deposit Funds(b)| 77,922| 3,380| 74,542|
Public Unit Trusts| 25,680| 1,531| 24,149|
Friendly Societies| 7,329| 144| 7,185|
Common Funds| 6,645| 20| 6,625|
Cash Management Trusts| 5,756| 0| 5,756|
Total| 217,664| 10,081| 207,583|
(a) Source: Insurance and Superannuation Commission
(b) Approximately $97 billion of superannuation money was invested through professional fund managers. |

The total assets of managed funds on a consolidated basis were valued at $207.6 billion as of June 30, 1991. However, there were additional assets representing liabilities of other managed funds, amounting to $10.1 billion or 4.6% of the total assets.

Cross investment was dominated by the superannuation business of life offices (33.6%) and superannuation funds and approved deposit funds (33.5%). In contrast, friendly societies, common funds, and cash management trusts had the least cross investment within the managed funds, totaling $164 million or 1%. After consolidation, the assets of statutory funds of life insurance offices along with superannuation funds and approved deposit funds accounted for $163.9 billion or 78.9% of the total assets at June 30, 1991. Within these consolidated assets held in statutory funds of life offices amounting to $89.3 billion both superannuation and ordinary business were included with superannuation business accounting for over 60% of all assets.
Lastly, as of June 30, 1991,the consolidated assets of public unit trusts totaled $24 billion or11 .6%ofthetotal assetsofmanagedfunds.Theseunittrustsspecificallyinvestedinassets suchasproperty,equity,mortgages ,publicsecurities ,etc.Thesetrustsofferchancesfor investors,speciallythosewhoaresmall,to accessthese marketsThe combined assets of various managed funds totaled $19.6 billion, with contributions from different types of funds. Professional fund managers oversaw Friendly Societies, which contributed $7.2 billion (3.5%), Common Funds with $6.6 billion (3.2%), and Cash Management Trusts with $5.8 billion (2.8%).

Professional fund managers play a crucial role in the managed fund industry, serving not only as managers for smaller funds but also as agents for other funds like unit trusts and superannuation funds. While they do manage portfolios for charities, their work often goes unnoticed by small investors. These fund managers can be divided into two groups: those associated with insurance agencies who act as agents for external institutions alongside their own clients, and those affiliated with other institutions. Their essential service entails skillfully matching assets and liabilities.

Professional fund managers primarily act as managers of pooled funds and also manage individual

portfolio investments for clients. A significant portion of managed funds, especially those from life offices and superannuation funds, are invested through these professional fund managers. As of June 30, 1991, $155.6 billion or 75% of managed fund assets were invested through professional fund managers. Table 2 illustrates the total unconsolidated assets of each managed fund type, as well as the amount invested through professional fund managers.

TABLE 2. ASSETS OF MANAGED FUNDS MANAGED BY PROFESSIONAL FUND MANAGERS AT 30 JUNE 1991, $ MILLION |
Type of fund| Unconsolidated assets of managed funds| Assets invested with professional fund managers|
| Statutory Funds of Life Offices | 94,332| 90,186|
| Superannuation and Approved Deposit Funds| 77,922| 41,342|
| Public Unit Trusts| 25,680| 20,724|
| Friendly Societies| 7,329| 3,148|
| Common Funds| 6,645| 209|
| Cash Management Trusts| 5,756| 0|
Total| 217,664| 155,609|

Statutory funds of life offices are the major employers of professional fund managers. They had $90 billion invested through fund managers at 30 June 1991 or 95.6 per cent of their total unconsolidated assets. Superannuation funds had $41.3 billion (53.1 per cent) of their assets invested through fund managers and public unit trusts had $20.7 billion (80.7 per cent) so invested. Professional fund managers also manage money from investors other than managed funds. At 30 June 1991, professional fund managers also invested $17.5 billion on behalf of government, general insurance and other institutions. Consolidated Assets Classified by Type of Asset

The consolidated total assets of managed funds were invested in seven broad categories of assets as at 30 June 1991. Table 3 below shows the consolidated total assets of managed funds by type of investment on both 30 June 1988 and 30

June 1991.

< td >29,216 < td >14.1%

< td >Long term assets < td >22,895 < td >15.0% < t d >31,977
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< tr>< th>Total< / th >< th >148,418 < / th >< th >100.0% < / th >
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At 30 June 1991, the majority (88.4 per cent) of managed funds' assets amounting to $183.4 billion was invested domestically,
while $24.2 billion (11.6 per cent) was invested overseas.
There was minimal change in the distribution of managed funds' assets across different investment categories from June 30,
1988 to June 30, 1991.

Type of investment	30 June 88	% of total	30 June 91	% of total
Deposit loans and placements	21,348	14.7%	28,455	13.7%
Short term assets	22,715	15.6%

The proportion of overseas assets underwent significant growth, rising from 7.5% in mid-1988 to 11.6% in mid-1991. Similarly, the category referred to as "other assets" also experienced an increase in its share, climbing from 4.7% in mid-1988 to 5.5% in mid-1991. This specific category primarily included accrued income and debtors. In contrast, the percentage of equities and units held in trusts, which had previously been the largest category, decreased from 23.1% of total consolidated assets in 1988 to 22.4% in 1991.

During the period from 30 June 1988 to 30 June 1991, managed funds experienced a significant growth in assets. The combined value of these funds increased by $62.2 billion or 42.8%, reaching a total of $207.6 billion. Throughout this

timeframe, the average quarterly growth rate was three percent (refer to GRAPH 1). Notably, the largest increase in assets within a single quarter took place in December 1988, with a rise of five-and-a-half percent.

The revenue generated by a designated legal fund must be placed into and become the property of the appropriate statutory fund. It should remain separate from other statutory funds or the life office, and can only be used to cover the obligations and expenses of that specific fund. Superannuation funds and approved deposit funds are created to provide retirement benefits for their members, consisting of contributions made by employers on behalf of employees or by employees themselves.

The contributions are used by fund managers to purchase investments and finance the retirement payments to fund members. Approved deposit funds, established in 1984, preserve benefits of recipients of eligible termination payments (ETPs) until retirement age. These funds accept individual ETPs and pool them into a fund for investment purposes. Public unit trusts, defined as arrangements governed by trust deeds between management companies and trustees, are open to the public for investing pooled funds of unit holders. These funds yield returns in the form of income and/or capital gains and allow unit holders to dispose of their units within a relatively short period of time. Unit trusts invest in specified assets, such as property, equity, mortgages, public securities, etc. The major distinction between listed and unlisted unit trusts is that listed unit trusts' units must be listed on Australian stock exchanges and adhere to listing requirements similar to those for company shares. Cash management trusts.

A cash management trust is a

type of public unit trust that invests in financial securities from the short-term money market. It operates under a trust deed and allows unit holders to redeem their units upon request.
Common funds, on the other hand, are similar to public unit trusts as they combine depositors' funds with other held funds. These funds are then used to invest in various securities or assets, including cash funds, equity funds, mortgage funds, property funds, and more.

However, common funds can only be established by prescribed trustee companies, who are also the managers of these funds. Friendly societies, founded in 1840, were initially created based on shared interests like craft or religion. Over the years, they have expanded their services to provide a comprehensive range of financial offerings to the general public, including investment fund management. Friendly societies are registered and operational in all states under appropriate state legislation. This feature article was contributed by Dene Baines and Suzanne Hartshorn.