Book Review > Australia's Top 100 Managed Funds 2005

This book, which covers 182 pages, comprises two parts. Part one looks at:

• what constitutes a managed fund and how they work;
• the different types of funds and investment approaches used;
• the various methods of investing in a fund;
• factors to consider when choosing a fund;
• investor risk profiles; and
• Morningstar Star Rating system and analysis which are used to create a short list of the top managed funds.

Part two features the top 100 fund profiles in detail. Each fund is allotted one page that includes commentary, performance history charts, fees, a portfolio profile, prospective objectives, purchase information and contact details. The funds are split into the three main legal types, namely, unit trusts (38), superannuation (38) and allocated pensions (24).

The author, who lives in Sydney, is a qualified accountant and Operations Manager of Neville Ward Direct, the largest direct marketeer of managed funds in Australia. He has worked in the Australian, Asian and UK finance industries for 18 years.

The author's style is easy to follow as he clearly explains the various concepts, for example, gearing and margin lending. The book is up to date with Government changes to superannuation and the introduction of term allocated pensions.

Since one of the key objectives of the book is to provide a useful investment selection tool to the broad investor market, wholesale funds have been excluded from the selection criteria. Hence, only retail funds are featured in the top 100 funds list. Investors more interested in wholesale funds would, however, probably still find the comparative information a useful guide.

The author prefaces part two with the comment: 'Unfortunately, some funds have been excluded from the top 100 despite their superior performance and risk management, because they are not currently rated by Morningstar or they did not meet one of the selection criteria. Consequently, readers should use this list of top 100 funds as a guide only…'

This is an important qualification as the top 100 list excludes some high performing funds, such as, those offered by the UBS (Union Bank of Switzerland) and Platinum Asset Management. The latter, a Sydney-based manager specialising in international equities, achieved an average annual growth rate of 11.3% over five years (to 31 December 2004) for its international fund. This contrasts with the Advance International Sharemarket Fund (p77) which recorded a total return of only 0.07% over the same period. The Morningstar Index actually declined at a rate of 0.38% over the five years.

There are no entries on index funds. The Vanguard Index Property Securities Fund recorded an average annual growth rate of 16.3% over the most recent five years compared with the Zurich Managed Investment Fund (p110) return of 14.42%.

There is some confusion about the actual number of managed funds in Australia. The rear cover of the book refers to '… more than 6 000' while on page 29 the text says '… over 5 000.' On p41 there is a reference to '…over 12 000' and on p43 a figure of 12 069 is mentioned. The key figure is probably the 6 899 funds which are open to new investments (also p43) as the writer says later (p50) only these are included.

Suggestions to improve the book include:

• a comment on the down side to investing in managed funds, eg. investors have no direct control over where their funds are invested, to balance discussion of their advantages; and
• instead of grouping the funds alphabetically, perhaps by, say, five year growth rates which would make it easier for readers to more quickly identify leading funds;
• revising some performance history charts which are difficult to read because of the small scale used, that is, with three lines drawn the distinction between them becomes blurred, eg. pages 96 and 116.

With about 6 900 managed funds in Australia choosing the right one can be a daunting task. Although this book is not the definitive work on the subject, it should provide a valuable starting point in helping investors identify some of the funds that are likely to be amongst the top performers over time.

John Russell is a member of the AIA.