Q&A: Investing in Managed Funds for SMSFs. Factors to Consider

Before investing in a managed fund with your SMSF, you need to consider a few key questions:

  • What investment management style are you looking for (active or passive)?
  • How will you buy the managed funds (via a broker or fund manager)?
  • What are the associated costs (brokerage, management and performance fees)?
  • What is your investment objective (growth or income)?

Investing in a managed fund poses many benefits; it is an excellent way for investors to gain exposure to a broad range of markets, assets, investment themes and a lot more. If you are looking for diversification, you have come to the right place. 

Four factors to consider when buying managed funds in your SMSF:

  1. Decide on an investment style – active or passive management. Costs and performance are often historically better in passive investments, but timing is critical. During times of market volatility, active or event-driven strategies tend to outperform index-tracking/passive investments. 
  2. Determine how you will buy managed funds in your SMSF. You can go directly to the fund manager and commonly purchase units in a fund, or you can purchase an ETF or Exchange Traded Fund through a stockbroker. Both methods have pros and cons.
  3. Analyse all of the costs involved in purchasing a managed fund. There’s no such thing as a free lunch, so understanding how the investment manager makes their money is necessary. Management fees and performance fees are standard and vary depending on how labour intensive the investment strategy is. Brokerage is also applicable for listed or exchange-traded products. You may also find a buy/sell spread when dealing with the fund manager directly.
  4. Plan your investment portfolio according to your objectives. Each fund will have a different investment objective or investment mandate and understanding how the fund invests is critical to ensure you get what you want. If you have many years to retirement, then a growth investment style might be better for you. If nearing retirement or retired, then a defensive/income-focused strategy might be better. 

Should I choose an active or passive investment strategy?

First, you have to ask yourself – do you want to track the market, or do you want to try and outperform it? Tracking the market costs a lot less than the alternative for apparent reasons, and historical performance shows it is tough to beat the market consistently, especially when you have to contend with the higher fees but timing is the key here. 

- The Marketing Executive (mid-30s)

Active management refers to investment funds that are managed by professionals who try to select the best assets in the market, which they hope will outperform. Individual fund managers have achieved this in the short term but consistently beating the market in the medium to long term has proved difficult over the years, even for the likes of Warren Buffet. You can expect to pay a premium for an actively managed fund due to the additional work that goes into the research and execution of the strategy.

- The Accountant (semi-retired)

Passive investing seems to suit a wider variety of people because of the difference in fees, sometimes to the tune of around 2% in management fees alone. Passive investing is much more of a more laid-back approach and in recent years has grown significantly in popularity, due mainly to the results it has delivered for investors.

- The Small Business Owner (early 60s)

Generally speaking, the most common passive investment is the index tracking fund, which owns a selection of assets that replicate an entire market, like the ASX 200. The index fund’s performance will track the performance of the market very closely. So when you hear that the ASX 200 was up 2% on the day, your index fund would be up by a similar amount, primarily because the fees are so low. 

- The Accountant (semi-retired)

Where can I buy managed funds for my SMSF?

There are two main ways you can invest in managed funds, you can purchase from the investment manager directly or you can buy a listed fund like an ETF or LIC (listed investment company). When you buy directly from the fund manager, like Platinum Asset Management or Perpetual Limited you will typically be buying units in a fund or unit trust. The value of the units or unit price will fluctuate based on the underlying performance of the portfolio and you can buy and sell your holdings from the investment manager.

- The Accountant (semi-retired)

More commonly, most SMSF investors would buy managed funds from an online broker like Commsec or Interactive Brokers, which have a much broader offering of listed managed funds from many different investment managers.

- The Thrill-seeker (late-20s)

When purchasing from a fund manager directly, you will typically have to apply to invest in a managed fund. The fund manager might offer different classes of funds and for different types of investors (retail or wholesale investors).  Buying from a broker means you have to have a brokerage account with the broker to make the investment. Some examples of brokers in Australia are Interactive Brokers or Commsec. The process of buying the managed fund is the same as buying any other listed company or share on the ASX. 

- The Marketing Executive (mid-30s)

What are the main costs involved?

The fees are higher in an actively managed fund because there is more work involved. To put it in plain terms, a managed fund with a 2% management fee will cost you $200 for every $10,000 you invest. Most investment managers are upfront with these fees but it’s worth taking the time to understand any additional costs the manager charges they can impact your investment returns over time.

- The Small Business Owner (early 60s)

There can also be transaction fees for buying or selling a fund directly from a fund manager, opposed to a broker who charges a commission for the trade. The transaction cost for buying from a fund manager often comes in the form of a buy/sell spread which is essentially the cost difference between the buy/sell price of the fund. 

- The Thrill-seeker (late-20s)

How can I stay on top of my investment portfolio?

When you have decided which fund or funds you want to invest in, you might want to consider how you are going to stay on top of your investment. One way of keeping your portfolio in check is to rebalance every year. This means if one segment of your portfolio has experienced some gains, it now constitutes a more significant percentage of the portfolio than the previous. Often investors will choose to sell down a portion of the assets which have appreciated in value to bring down the overall exposure to that segment or asset class. 

- The Accountant (semi-retired)

General Advice Warning

Troy Burns

Non-Correlated Capital

Troy has more than 15 years investment and fund management experience, including management of hedge funds and multi-strategy funds. Troy has raised and managed over 300 million dollars in investments and has engaged and serviced over 150 high-net-worth clients for Non-Correlated Capital, the investment company which he serves as CEO and Portfolio Manager. Based out of Perth, Western Australia, Troy is one of the founders of SMSF Mate.

Troy’s educational qualifications include a Masters of Business Administration, Masters of Applied Finance, and Advanced Diploma, Financial Markets, completed at Charles Sturt University. Troy has also previously worked as a derivatives trader and the managing director of a civil engineering company.

You can find out more about Troy or connect with him on Linkedin here:

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Kind words from Aussies managing
their own self funded futures

  • SMSF Mate is a unique website because it has ideas about how to approach SMSFs, insurance and other financial topics that come straight from first hand experience. It's much more useful than what you find on all the other financial websites that just offer generic info that you could easily get on the ATO's website. It's also nice to know there's no financial incentive behind the information, it's legitimately there to help people understand self-managed super funds and how to get the most out of them, not to get an affiliate commission from a broker or other financial services provider. The investment product information is also incredibly useful, I've never seen this kind of functionality on any other website that let's you look at such a wide range of products, sort by what info is most interesting or important to you, and subscribe to updates for different funds and financial products all in one place. Definitely worth checking out if you own or are considering an SMSF!

    David G, Self-Employed, SMSF Owner
  • SMSF Mate provides a unique insight into superannuation and financial topics in a way that is easier to understand than conventional websites. The colloquial nature of the site makes it easy to understand and they often speak about complicated topics in lamens terms so I can wrap my head around them. The investment product information is a great way to research funds that I am interested in investing in with my SMSF and there is a lot of helpful information on the site for better structuring my investment portfolio. In comparison to other websites which offer similar information, SMSF Mate excels as the information is free to access whereas many other sites charge a subscription fee for the same thing. Overall, I think SMSF Mate is a great resource for SMSF trustees and is worth looking at for a variety of super-related topics. Thanks.

    Tim B, Business Owner, SMSF Trustee