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Key Takeaways
- Managed funds and ETFs both provide diversified investment opportunities.
- Managed funds are typically professionally managed, while many ETFs track market indices.
- ETFs generally offer greater trading flexibility and may have lower management fees.
- Managed funds may suit investors seeking active portfolio management.
- Professional financial advice can help determine the right investment mix for your goals.
If you’re looking to grow your wealth, you’ve likely come across two popular investment options: managed funds and exchange-traded funds (ETFs). While both allow you to invest in a diversified portfolio, they operate differently and may suit different investment goals, risk profiles, and levels of involvement. Understanding the differences between managed funds and ETFs can help you make more informed investment decisions and choose the approach that best aligns with your long-term financial strategy.
What Is a Managed Fund?
A managed fund is an investment where your money is pooled with contributions from other investors and managed by a professional fund manager. The manager makes investment decisions on behalf of all investors, selecting and managing assets based on the fund’s objectives.
Managed funds can invest in a variety of assets, including:
- Australian and international shares
- Property
- Fixed interest investments
- Cash
- Infrastructure and alternative assets
Rather than buying individual investments yourself, you purchase units in the fund, with the value of those units changing as the underlying investments perform.
What Is an ETF?
An Exchange-Traded Fund (ETF) is also a pooled investment, but unlike a managed fund, it trades on the Australian Securities Exchange (ASX) just like individual shares. Most ETFs are designed to track the performance of a particular market index, industry, or asset class, although actively managed ETFs are becoming increasingly available.
ETFs can provide exposure to:
- Australian shares
- International markets
- Bonds
- Property securities
- Commodities
- Specific industries or themes
Because they trade on the share market, ETFs can generally be bought and sold throughout the trading day.
How Are Managed Funds and ETFs Similar?
Although they operate differently, managed funds and ETFs share several important characteristics.
Both investment options:
- Provide diversification across multiple assets
- Allow investors to access professionally managed portfolios or investment strategies
- Can help reduce the risk associated with investing in a single company or asset
- Are suitable for long-term wealth-building strategies
For many investors, either option can form part of a diversified investment portfolio.
Key Differences Between Managed Funds and ETFs
While managed funds and ETFs share many similarities, there are several key differences that may influence which option is right for you.
Investment Management
Managed funds are generally overseen by professional fund managers who actively select investments with the aim of outperforming the market or achieving a specific investment objective. Many ETFs, on the other hand, are passively managed and designed to track the performance of an index, such as the S&P/ASX 200. However, actively managed ETFs are also available and are becoming more common.
Trading and Accessibility
One of the biggest differences is how investors buy and sell their investments. Managed funds are typically purchased directly through the fund manager or an investment platform, with transactions processed at the fund’s unit price at the end of each trading day. ETFs are bought and sold on the ASX during market hours, allowing investors to trade throughout the day in the same way they would trade individual shares.
Costs
Investment costs vary depending on the product and investment strategy.
In general:
- Passively managed ETFs often have lower management fees.
- Actively managed funds may have higher fees due to the additional research and portfolio management involved.
- Brokerage fees may apply when buying or selling ETFs through a trading platform.
Rather than focusing solely on fees, investors should consider the overall value a strategy provides, including its objectives, diversification, and suitability for their goals.
Investment Minimums
The minimum investment required can differ between products. Some managed funds require a minimum initial investment, while others are available through investment platforms with lower entry requirements. ETFs generally only require enough funds to purchase one unit, plus any brokerage costs, making them an accessible option for many investors.
Which Option Is Right for You?
Choosing between a managed fund and an ETF depends on your personal circumstances, financial goals, investment timeframe, and risk tolerance.
A managed fund may suit investors who:
- Prefer professional investment management
- Want access to actively managed strategies
- Are focused on long-term investing
- Value regular portfolio oversight
An ETF may suit investors who:
- Want a low-cost investment option
- Prefer flexibility when buying and selling
- Are comfortable managing their own portfolio
- Want broad market exposure through index investing
There is no universal “better” option. In fact, many investors choose to include both managed funds and ETFs within their overall investment strategy.
Should You Choose One or Both?
You don’t necessarily have to choose between managed funds and ETFs. Depending on your financial goals, combining both may help create a well-diversified portfolio.
For example, you might use:
- ETFs for broad market exposure and lower-cost diversification
- Managed funds for specialist sectors or actively managed opportunities
The right mix depends on your investment objectives and overall financial plan. Our financial planning services can help you determine which investment approach aligns with your long-term goals and risk profile.
The Importance of a Diversified Investment Strategy
Whether you invest through managed funds, ETFs, or a combination of both, diversification remains one of the most important principles of successful investing.
A diversified portfolio can help:
- Spread investment risk across different asset classes
- Reduce the impact of market volatility
- Support more consistent long-term returns
- Keep your investments aligned with your financial goals
Our broader services take a holistic approach, ensuring your investment decisions work alongside your tax planning, superannuation, and overall wealth strategy.
Making the Right Investment Choice
Managed funds and ETFs each offer unique benefits, and the right choice depends on your individual circumstances rather than one investment being inherently better than the other. Understanding how each option works allows you to build an investment strategy that reflects your goals, investment timeframe, and tolerance for risk. With a diversified approach and regular reviews, both managed funds and ETFs can play an important role in growing long-term wealth. You can also explore more investment insights by visiting the Pursue Wealth blog.
Build an Investment Strategy That Fits Your Goals
Choosing between managed funds and ETFs is just one part of creating a successful investment plan. What’s most important is having a strategy that aligns with your financial objectives, adapts as your circumstances change, and supports your long-term wealth goals.
Ready to Build a Diversified Investment Portfolio?
Whether you’re investing for the first time or reviewing your existing portfolio, the team at Pursue Wealth can help you understand your options and develop an investment strategy tailored to your needs. Contact us today to discuss your investment goals and explore the right approach for your financial future:
