So you’ve started your research on how to invest in Australia and you keep seeing the words ETFs, Index funds, Mutual funds and Managed funds - all the funds.
And it’s getting a little bit quite confusing and complicated to figure exactly what each one does.
Well in this video, I’m going to explain to you what each one fund is, their key features and which funds I’m personally invested in.
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Disclaimer: I am not a financial adviser, I am not an accountant, I am not a tax adviser. This video and my channel is for general information only, as with anything in life you should do your due diligence and seek independent advice.
👋 WHO IS CHRIS CHOW 👋
Hello! My name is Chris, I'm a marketing manager working in Sydney, Australia. I have worked at Apple, Microsoft and HP in a variety of marketing roles. I make videos about personal finance, investing and saving money.
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* Mutual Funds *
Let’s start with the oldest kind of fund - mutual funds. Mutual funds date all the way back to the 1890s and originated in the USA.
A mutual fund is a type of investment fund that lets investors pool their money together. A fund manager will then use that pooled money to invest into assets, such as shares or bonds, on behalf of the investors.
Mutual funds can be passively or actively managed. When it’s passively managed, that’s usually an index fund and when it’s actively managed, it’s usually called a managed fund.
One thing to note is that the term “mutual fund”, isn’t that commonly used in Australia. Instead people will directly use the term managed funds or index funds.
* Managed Funds *
As I mentioned earlier, when we use the term managed funds, we are usually referring to actively managed funds. This means the fund manager has a hands on strategy with the goal of outperforming the market benchmark. The strategy will rely on research and expertise to hand-select stocks for the fund and each managed fund will have their own special strategy .
For example The Magellan Global Fund seeks to invest in outstanding companies at attractive prices, while exercising a deep understanding of the macroeconomic environment to manage investment risk.
Meanwhile ARK Invest “Aims to provide broad exposure to disruptive innovation. ARK believes innovations centered around artificial intelligence, robotics, energy storage, DNA sequencing, and blockchain technology will change the way the world works and deliver outsized growth as industries transform.”
* Index Funds *
Index funds are a type of mutual funds created by John Bogle - the founder of The Vanguard Group, which is one of the largest providers of index funds globally. While at Princeton University, Mr Bogle conducted a study that found that most mutual funds did not earn more money compared to broad stock market indexes. This insight would serve as inspiration to create the index fund.
As the name implies, an index fund simply tracks an index.
An index is a way to track the performance of a group of assets such as stocks.
Let’s use Australia’s most well known index -the ASX 200 as an example. The ASX 200 consists of the 200 biggest listed companies in Australia. It’s usually the one mentioned on the 6:00pm news whenever they talk about the stock market rising or falling.
If you invested in an Index Fund that tracks the ASX 200, it’s price would increase or decrease based on the index. So back in March 2020 when the ASX 200 plummeted because of the pandemic, the value of your investment would have also dropped.
* ETFs *
Finally, we have ETFs - Exchange Traded Funds. Think of it like a special version of the mutual funds.
They are investment funds that have been listed on an stock exchange, this means you can trade them like you would shares in a company such as Tesla or Afterpay.
Each ETF listed in Australia is allocated an ASX code similar to the shares.
There are ETFs for index funds and managed funds. Examples of popular index fund ETFs are:
Vanguard Australian Shares Index ETF (VAS)
iShares S&P 500 ETF (IVV)
BetaShares NASDAQ 100 (NDQ)
Some of popular managed fund ETFs on the ASX are:
Magellan Global Fund Closed Class (MGF)
Ophir High Conviction Fund (OPH)
Platinum International Fund (PIXX)
#ETFs #Investing