Traditional unlisted managed funds and exchange traded funds (ETFs) can both be used by investors to build a balanced portfolio. They both offer a unit-based system where investors buy units of the fund rather than specific shares or assets, and due to their diversified holdings, they can both offer access to markets and diversification benefits that investors might find hard to achieve with individual shares.
Traditionally in Australia, unlisted managed funds have been the go-to option for investors looking for a diversified fund structure, but ETFs (and in particular active ETFs) are becoming increasingly popular with many types of investors, and nearly two million Australians now have at least one ETF in their portfolio.1
According to the ASX’s Australian Investor Study 2023,2 26% of intending investors are planning to invest in ETFs in 2023, and 55% of Australia’s high value investors already hold ETFs. And with the rise of actively managed ETFs, investors can reap many of the benefits of a traditional unlisted managed fund through an ETF structure.
If you’re choosing between ETFs and unlisted managed funds, it can help to understand the differences so you can find the best investment tool for your circumstances and goals.
Active ETFs are managed funds that are traded on a stock exchange, like shares. This makes them easy to buy or sell on a daily basis. With an online brokerage account, it’s straightforward to trade ETFs online without any need for third party involvement, giving you complete visibility and control. It is important to note that additional costs such as brokerage fees may apply when trading an ETF.
To invest in an unlisted managed fund, you will usually need to apply to the issuer directly, by completing an application form, depending on the requirements of the fund. That means the process can take longer compared to investing in an ETF.
When you invest in ETFs – including active ETFs – the investment minimums are typically lower, subject to your broker or investment platform requirements.
This removes some of the barriers to entry that can apply when investing in managed funds, which typically require a higher minimum investment.
For example, Macquarie’s strategy, the Walter Scott Global Equity Fund, is now available as an active ETF (ASX:MQWS) with no minimum investment requirement. Like many ETFs, this is subject to any minimum marketable parcel size on the exchange and the requirements of your broker or investment platform. This allows a broader range of investors to access the same level of investment expertise and strategy, with the convenience of buying and selling units like shares.
The NAV per unit for an ETF is published each trading day and is based on the value of the ETF’s underlying assets minus fees and other expenses. Because ETFs offer live pricing on the stock exchange, you are in control of the price you buy and sell at. Just like trading shares, you can take the market price with a market order or set your price with a limit order. The latter gives you greater certainty over the price you will trade at.
With an ETF there is also greater transparency around the fund’s underlying holdings, as ETF issuers are required to regularly publish this information on their websites. In contrast, unlisted managed funds are not always required to disclose their portfolio holdings and often only list their top 10 investments. Unlisted managed funds do not provide live pricing, and standard timeframes for a buy or sell request typically mean the entry or exit price for a trade is not usually known and not published by the issuer until the business day after the trade.
Both ETFs and traditional unlisted managed funds can provide broad exposure to different asset classes, sectors and global markets. And they can both play a role in a balanced portfolio.
They can also be actively managed by specialist portfolio managers who seek to outperform the market with a specific investment strategy. Or they can be passive strategies – tracking an index with the aim of replicating its performance.
In some cases, one fund will offer both an unlisted investment option and an option for investors to invest in the fund via an ETF investment option. In such a situation, both unlisted and ETF investors have exposure to the same assets – the only difference being the way they access them.
All investments carry risk. Different investments carry different levels of risk, depending on the investment strategy and the underlying investments. Generally, the higher the potential return of an investment, the greater the risk (including the potential for loss and unit price variability over the short or long term). Find more information on the risks of investing in an ETF in the Product Disclosure Statement for the ETF. This and the Target Market Determination for the ETF should always be considered before deciding to invest in any ETF.
The Macquarie Walter Scott Global Equity Active ETF (Managed Fund) is a separate class of units in the Walter Scott Global Equity Fund (ARSN 112 828 136). A separate class of units is not a separate managed investment scheme.
The Macquarie Walter Scott Global Equity Active ETF (Managed Fund) is designed for consumers who are seeking capital growth and income distribution; are intending to use the Fund as a core component, minor allocation or satellite allocation within a portfolio; have a minimum investment timeframe of seven years; have a high or very high risk/return profile for that portion of their investment portfolio, and require the ability to have access to capital within one week of request. The Target Market Determination (TMD), available at macquarieim.com/TMD, includes a description of the class of consumers for whom the Fund is likely to be consistent with their objectives, financial situation and needs.
Future results are impossible to predict. This document contains opinions, conclusions, estimates and other forward-looking statements which are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements.
Past performance information shown herein, is not a reliable indicator of future performance.
No representation or warranty, express or implied, is made as to the suitability, accuracy, currency or completeness of the information, opinions and conclusions contained in this document. In preparing this document, reliance has been placed, without independent verification, on the accuracy and completeness of information available from external sources. To the maximum extent permitted by law, no member of the Macquarie Group nor its directors, employees or agents accept any liability for any loss arising from the use of this document, its contents or otherwise arising in connection with it.
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