Managed Funds
Investors who are less sure about investing directly in the world’s bond and stock markets, yet who wish to take advantage of the profits to be earned in those markets, might consider investing in managed funds. Managed funds, as they are known in the U.S., or unit trusts, as they are called in the United Kingdom are the generic name for funds managed by professional portfolio managers.
These funds represent collective investments managed on a daily basis by portfolio managers who seek to outperform the major market indices. Portfolio managers generally invest in the huge bond and stock markets, as well as in short-term money market instruments and seek to purchase securities that they view as undervalued or under priced. Such securities offer arbitrage opportunities against outright selling, and short selling, of overvalued securities of similar quality that the managers will seek to liquidate.
Investment managers aim to improve the percentage yield or overall value of their portfolios by cashing in on capital gains of rising securities as well as interest and dividend income provided by bonds and stocks. The funds themselves can become very large indeed being comprised of capital collected from many hundreds of thousands of investors, ranging from large pension funds to small investors.
Managed funds are normally open-ended, meaning that no upper cap limit is set on the amount of units in the fund that any one individual person or company can purchase. As a means of determining the individual performance of their portfolios, fund managers publish daily net asset value (NAV) figures. These are calculated by totaling the cash value of the entire fund (which may reach many billions of US dollars), and dividing this figure by the number of shares in general circulation. Improvements and falls in the level of the NAV provide an indication to the general public on how well a fund has performed.
Over time, managed funds can keep up with, and may even outperform the major market indices, and should certainly form a portion of any individual’s investment portfolio.
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