Managed funds are one of New Zealand’s more prominent investments, and one of its most well-liked. A Financial Markets Authority (FMA) survey from earlier this year found that 80 per cent of investors with managed funds felt confident about markets in general.

With the right investment experts by your side, putting your money in a managed fund can be a great way of building wealth for the long-term. However, you must be careful about how you choose a fund.

Don’t judge a fund by its cover

Conservative. Growth. Balanced. Every managed fund has its own name, which gives you an indication of the kind of returns and risk it will provide. However, this is far from a definitive statement on whether it is the fund you should be looking at.

First-time investors may struggle to understand what makes a fund right for them.

For example, two funds with the same name from different operators could have drastically different performance results, because the investments in the fund can be quite different from one another.

Don’t judge a fund by its cover instead look at its product disclosure statement and its fine print. The specific investments, the history and expertise of the fund manager and the track record of the operator are all crucial elements in finding a fund that matches your needs.

Find the level of clarity that you need

How often would you expect to be updated about a managed fund’s performance? Weekly? Monthly? Annually?

Fund managers are required to provide updates on investment returns at least once per year, but many do this on a quarterly basis. In some cases, like with Milford’s online account access, investors can log in and check the value of their assets any time.

Don’t run the risk of being left in the dark – make sure you work with a fund manager that will have the information you need, when you need it.

Do you know how to make your managed fund work for you?
Do you know how to make your managed fund work for you?

Understand the benchmarks

What is your managed fund competing against? Most funds have benchmarks they aim to outperform. Growth funds for example, should have benchmarks that reflect the return you could get by investing in a similar collection of growth assets. This could be a share market index like the NZX50 or a rate of return at or above the long term return of a share market index, for example 10 per cent per annum.

Past performance against benchmarks is never a guarantee of future returns, but it tells you if the fund manager has been successful before.

More often than not, the easiest way to select a fund is by working with a proven manager. If you want to find out more, start with the investment experts at Milford Asset Management.