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Understanding different fund types

From single-sector funds to multi-manager funds and passive index funds, the investment choice available to members may seem both overwhelming and confusing.

Investing for superannuation can be a complex undertaking, so it’s understandable for members to have questions about how their investments work and what investment options are right for their financial journey. Below, we break down the different funds available at Colonial First State, and offer some helpful considerations to members as they determine what funds may be right for them.

Single-sector funds

A single-sector fund invests in one asset class, like Australian shares, fixed interest or property. However, some of these funds may also invest in a specific sector of an asset class. For example, a global share fund may focus solely on companies in Asia or companies within the Technology sector. These funds are professionally managed by one or more investment managers who specialise in a given field. Colonial First State has a number of single-sector funds – from Australian and emerging market shares, to Australian small companies, property, fixed interest, alternatives, and more.

Multi-sector funds

A multi-sector fund (also known as a multi-asset fund) can invest in multiple asset classes and may be professionally managed by one or more specialist investment managers. These funds generally have a different level of risk associated with them that determines what they invest in and how they’re labelled. For example, a Growth fund may have more exposure to higher-risk growth investments like property or shares, while a Conservative fund may have more exposure to lower-risk conservative investments like cash or fixed interest. Colonial First State has a range of multi-sector options to choose from across different risk profiles.

Multi-manager funds

A multi-manager fund (often referred to as a fund of funds) is a single fund managed by multiple investment managers that each has its own investment portfolio. For example, a global shares fund may have three investment managers, and the individual investment portfolios of these managers each hold a percentage position in the overall fund – with Manager A making a 20% contribution, Manager B making a 30% contribution and Manager C making a 50% contribution to the overall fund. A multi-manager fund can also be invested as a single-sector fund or a multi-sector fund. Colonial First State has a range of multi-manager options for members to choose from.

Single-manager funds

A single-manager fund can be invested as a single-sector fund or a multi-sector fund. However, this kind of fund is professionally managed by just one specialist investment manager based on the objectives Colonial First State has specifically set out for the fund. Colonial First State offers a range of single-manager funds as a way of diversifying the investment offering to members.

Active and passive (index) funds

Both active and passive (or index) funds can be invested as single-sector or multi-sector funds, and may also have a level of risk associated with them that determines what they invest in and how they’re labelled. Active funds involve active decision-making. They are professionally managed by one or more investment managers who strategically buy and sell the fund’s investments in a bid to outperform the market. Passive funds require little decision-making. They may be professionally managed by one investment manager who chooses investments that aim to follow (or replicate) the returns of a particular benchmark – for example, the ASX 200 index for Australian shares.

 

Colonial First State offers a range of funds that use active or passive strategies, or a combination of both. The Colonial First State index funds include both single-sector and multi-sector approaches, while the multi-index multi-sector funds combine both active and passive approaches to provide a range of profiles that members can select.

How can members know what options are right for them?

Ultimately, what a member chooses to invest in will depend largely on their personal circumstances. However, we’ve included some helpful tips that members may like to consider about their options:

 

  • Consider your personal risk profile to determine whether your fund of choice aligns with your financial objectives and the needs you may have at your particular life stage.
  • Read the PDS of your investment option for more information about the fund’s objectives, investments, management fees, and any potential risks involved with an investment in it.
  • Review the long-term returns of the fund. Financial markets often fluctuate for a number of reasons, meaning a fund may experience volatility due to market fluctuations over one year. While past performance is no indicator of future performance, the long-term returns of a fund could offer better insight into the positive growth achieved over a longer time period.
  • Speak to a financial adviser if you’re unsure – they have the knowledge and skills to not only review conditions in financial markets, but to help assess your investment portfolio and potentially suggest changes to your financial plan in alignment with your circumstances.

Want to learn more?

Colonial First State has been helping Australians achieve their individual retirement goals for more than 30 years – offering more than 150 investment options carefully managed by a dedicated team with decades of specialised experience across a range of asset classes and market conditions.

 

Speak to a financial adviser for more information about your investments, or read the latest market updates and other helpful resources to help keep you informed – each step of the way.

Disclaimer
Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. CFSIL also issues interests in products made available under FirstChoice Investments and FirstChoice Wholesale Investments. This document may include general advice but does not take into account your individual objectives, financial situation or needs. The Target Market Determinations (TMD) for our financial products can be found at www.cfs.com.au/tmd and include a description of who a financial product is appropriate for. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from www.cfs.com.au or by calling us on 13 13 36.