EFT or Managed Fund

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EFTs and Managed Funds are basically the same thing, with how they are traded being the major difference.

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Somewhere along the lines people got these things confused.

Alot of people seem to think that an ETF (exchange traded fund) is an Index fund (a fund that follows an index such as ASX 200) and a managed fund is an actively managed fund (has fund managers actively picking stocks in a bid to outperform the market).

However in reality, ETFs can be both passive and active funds, and so too can managed funds.

The biggest difference between them is how they are traded. ETFs as the name would suggest are traded on the stock exchange, and because of this there value isn’t always reflective of the the value of their underlying funds. (you will quiet commonly see them trade at a discount in uncertain times, and a premium in good market times)

You pay a brokerage fee for your transaction.

A managed fund’s unit price is anchored to the Net Asset Value and the buy or sell of units is handled by the fund manager and the fee incurred is known as the buy sell spread.

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The above image is Vanguard’s Australia Securities Index fund, on the left we have VAN0002AU, and on the right VAS, they are essentially the same fund, just purchased in a different manner, and a slight difference in fee.

Over a ten year period they only had a difference in 1% for accumulated performance, this could be partially due to the fee difference, but also VAS is able to trade at a premium to its asset value.

ETFs are a useful for when you want to do large one off purchases of stocks, with the aim of just holding them for growth.

Managed funds come into their own when you want to put aside a bit of money each month (say $100) which you wouldn’t normally be able to purchase an ETF ($500 is min trade on the exchange). However it is important to note that to make small contributions into a managed fund it would have to be done via a platform such as NetWealth or MyNorth which would incur more administration fees. (Direct to a fund manager has different contribution rules, and all of require different minimum values)

If you want guidance on what to invest in, and whether ETFs or Managed Funds would be suitable for you, click the button below to book in for your complimentary meeting.

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