Unlisted managed funds: Understanding the basics

Generating income from your hard-earned savings can be challenging and it can be overwhelming considering the wide variety of investment options available.  Unlisted managed funds are an option chosen by many investors seeking a passive investment designed to deliver regular income to fund those things they value the most.

Many people also use managed funds as an option for investing the capital in their self-managed super funds.

In this blog we break down the fundamentals of unlisted managed funds.

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The basics of unlisted managed funds

When you invest in an unlisted managed fund, you are allocated ‘units’ based on how much you invest and the current price of each unit.

For example, if you invest $10,000 and the unit price at the time is $1, you would be allocated 10,000 units. If the unit price rises to $1.10, the investment will be worth $11,000 ($1.10 x 10,000 units). Or, if the unit price drops to $0.90, the investment would then be worth $9,000 ($0.90 x 10,000 units).

Unlisted managed funds can be an effective way to make the most of your investment dollars because your contribution is pooled with the money of other investors. Managed funds can deliver benefits such as:

  • A tailored portfolio – Depending on the type of fund, it may invest in shares, property, private debt, fixed interest or cash, or a combination of these assets. Each fund’s investment strategy will outline what types of assets it invests in, so you can choose the fund investing in the type of asset class/es you feel best meets your investment goals e.g., you could choose a property-based fund if you are looking for exposure to the property sector without having to directly invest in property.
  • Asset diversification – Investing via an unlisted managed fund can provide you with exposure to a much larger portfolio of assets in a specific asset class than you may be able to invest in directly
  • Broader market access – Some asset classes may otherwise be unavailable to you as an individual investor, such as industrial or commercial property which would require substantial upfront capital to purchase on your own – in addition to ongoing management costs. Unlisted funds are a way of gaining access to these types of asset classes
  • Professional management and administration of your investment – Fund Managers will usually have a team, or multiple teams, focused on delivering on the investment strategy and driving returns for investors. Managed funds are also convenient for the investor because the manager handles the day-to-day fund administration.
  • A passive investment option – Unlisted managed funds can be an effective way to earn passive investment income, in the form of regular income distributions because once you have invested your money, the Fund Manager does the work for you.

Interested in our managed fund options?

A member of our Investor Relations team can discuss any questions you might have about investing with Trilogy Funds.

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Earning income from unlisted managed funds

There are typically two types of potential returns from unlisted managed funds, distribution income and capital growth via the unit price.

Distribution income: Unit holders receive distribution income when a fund makes a payment to investors during the course of the investment. The income consists of the earnings the fund has generated over the period and may include income (earned by the assets of the fund) and/or capital gains, if relevant, (e.g., from the sale of fund shares or other fund investments. Distributions are usually variable. Distributions are usually paid net of fees and quoted as a rate per annum, annualised (e.g., 5.00% p.a.). For example, if you had an investment of $10,000 in a fund that paid monthly and its return for a particular month was 5.00% p.a. annualised, you would receive a distribution of $41.67 for that month.

Many managed funds will give you the option of receiving your distributions as cash directly into your nominated bank account or reinvesting your distribution back into the fund.

Unit price growth, or capital growth: This can occur when the value of the underlying investments in the fund have grown over the period of the investment. This can result in an increase in the value of the units in the fund. Capital growth can often only be realised by investors when assets in the fund are sold and funds returned to unitholders, or if investors are able to withdraw their investment from the fund at certain points throughout the term of the Fund. Note that not all managed funds will experience unit price growth. Some funds have a fixed unit price and, in some cases, due to changes in value of the assets of the fund, the unit price can fluctuate to a value higher or lower than when you first invest.

Understanding the risks

For any investment, it is always important to understand the risks as well as the potential returns.

Each managed fund has different risks based on the assets it invests in. Prior to investing in a fund, you should read the Product Disclosure Statement (PDS) carefully, particularly the section which outlines the risks of the fund.

Understanding fees and costs

It is also important to understand the different fees and costs involved in investing in a managed fund. These could include management fees, entry and/or exit fees, performance fees, or adviser service fees. Different types of funds and fund managers will have different types and levels of fees. It is important to review the PDS carefully and talk to your adviser or the fund manager to understand what fees relate to a specific managed fund and how they may relate to your investment.

The fund manager

A fund’s track record is important, but you do need to be careful as past performance is not a reliable indicator of future performance. This is where the quality of the management team and understanding the investment philosophy of the Fund is crucial, as different investment styles tend to perform differently across the economic cycle.

Are you considering investing in an unlisted managed fund? You can learn more about Trilogy Funds’ investment options via the brochure below or speak to a member of our Investor Relations team on 1800 230 099.

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This article is issued by Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) and does not take into account your objectives, personal circumstances or needs, nor is it an offer of securities. Investments in Trilogy Funds’ products are only available through the relevant Product Disclosure Statement (PDS) and by considering the Target Market Determination (TMD) issued by Trilogy Funds and available at www.trilogyfunds.com.au. All investments, including those with Trilogy Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. See PDS and TMD for details. Investments with Trilogy Funds are not bank deposits and are not government guaranteed. Past performance is not a reliable indicator of future performance.

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