13 Aug 2020

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Understanding ASX-quoted managed funds

ASX-quoted managed funds are becoming increasingly popular among investors looking for a simpler and more transparent way to buy into diversified portfolios.

These funds allow investors to easily buy and sell units (shares) via the Australian Securities Exchange (ASX). The benefit is that there is no minimum purchase level (other than brokerage limits), no entry or exit fees and no complicated application paperwork.

These funds have been around since 2014. They combine elements of mutual funds and exchange traded funds, including quarterly reporting, the flexibility to be traded throughout the day, greater tax efficiency and net asset value-based trading. This allows them to retain both efficiency and portfolio confidentiality.

A key benefit of the ASX-quoted managed fund structure is transparent, real-time pricing. This means transactions reflect the genuine value of the fund’s investments, unlike more traditional listed investment company (LIC) or listed investment trust (LIT) structures.

The reason for this is that investors who want to sell their shares in a LIC or LIT on the ASX need a buyer. This can – and often does – result in LIC and LIT shares being sold at a discount to the true value of the fund’s net tangible assets (NTAs) because of a lack of demand. It can also lead to shares trading at a higher price than the fund’s true value, if demand is high.

The open-ended nature of ASX-quoted managed funds means they use the stock exchange to sell new units to investors or buy back units from investors who want to sell. The trading price of the units reflects, or is very close to, the true value of the fund’s underlying NTA.

To achieve this, the fund manager publishes an indicative net asset value (iNAV) that is constantly updated throughout the ASX trading day. The fund manager also appoints an agency market maker to set a price – usually one cent wide of the iNAV – and provides liquidity by buying or selling units on the fund’s behalf to satisfy investor supply and demand. 

Another alternative for investors is an unlisted fund. These offer many of the benefits of an ASX-quoted managed fund, but units can only be bought and sold through the fund manager by filling in an application form. Unlisted funds will also often have a minimum initial investment and may require investors to invest for a certain period.

To learn more about which type of fund is right for you, talk to your financial adviser.

We are delighted to announce the launch of the Montaka Global Extension Fund (Quoted Managed Hedge Fund) (ASX: MKAX). This new fund gives investors access to a portfolio of global growth opportunities through one online trade. Find out more at the Montaka website.  

 

 

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