Managed funds come in many different types and sizes although the principal structure of them remains the same: a collective of investors pooling their investments together under a single professional fund manager.

The main difference between one managed fund and another will relate to the “asset class” they invest into. An asset class describes the type of assets the managed fund actually invests money into. There are a number of different types and specialities however managed funds can generally be categorised into 5 key types: Australian Equities (Australian shares), International Equities (overseas shares), Property, Fixed Interest (generally Bonds) and cash.

Australian Equities: This can include any investment in Australian listed companies that trade on the Australian Securities Exchange (ASX), excluding property companies.

International Equities: This includes companies that sit on stock markets outside of Australia. For example the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE)

Property: When talking about Managed Funds and property we are mainly referring to commercial property investments (i.e. not residential property). This can include property investments into office buildings or shopping centres. Managed fund investments into property can also include industrial and logistics sheds used by the likes of Toll Holdings or Qantas.

Property investments for a managed fund may also include listed property funds called Real Estate Investment Trusts (REITs) or unlisted property funds. The difference between these two types of property funds is that REITs are listed on the share market (e.g. Westfield) and as the name suggests, unlisted property funds are not listed on the stock exchange (e.g. AMP's Wholesale Australian Property Fund). Listed fund investments are able to be traded on a regular basis like any share. Unlisted property investments are not generally traded and are held for a defined term (generally until the property is sold).

Fixed Interest: Fixed interest investments are generally investments into government or corporate bonds that pay a set level of interest for a defined term. For example you could invest in 10 year Australian Government Bonds. Corporate Bonds are structured similarly but are generally shorter term (say 3 years or 5 years) and are funded by the underlying company’s operations rather than any government security.

Fixed interest investments can be made in Australian investments or into international bonds and fixed interest securities.

Cash: It is the investment into banking institutions in the form of deposits. These will normally be made into cash management trusts or CMT’s.

In addition to these main asset classes you can also see managed funds investing into “alternative” asset classes like infrastructure (roads, rail, energy, water, airports etc.), agriculture, development and forestry.

Some managed funds will combine all these asset classes together into a “Diversified Fund” or a “Balanced Fund”. These funds seek to spread investments across a combination of asset classes (and sometimes different investment managers) to provide a spread of risk and return choices for investors.

Managed funds present a large variety of investment choice for retirees, growth investors, SMSF investors and others to gain access to professional investment markets.