Are managed funds dying out? We have seen managed funds transition to active ETFs in recent years, perhaps rendering the structure obsolete
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There has certainly been both winners and losers from the rise we have seen over the past decade or two of the exchange-traded fund (ETF). Although ETFs are now commonplace, there was a time when the idea didn’t even exist. Before the rise of the ETF, this space was almost exclusively occupied by managed funds (also called mutual funds), with the odd Listed Investment Company (LIC) thrown in. A managed fund differs from an exchange-traded fund in that it is not traded on a stock exchange. Instead, these funds trade outside the share market. Investors can usually only buy, sell or trade managed fund units outside of market hours. And this is a laborious task too, with the fund manager having to manage the pricing, and trading, of its own units.
Managed funds are still around, of course. Many of the ASX’s largest fund managers, companies like Magellan Financial Group Ltd (ASX: MFG) and Platinum Asset Management Ltd (ASX: PTM) still offering a range of unlisted funds for retail investors.
But a strange thing seems to be happening to this space. Something that prompts the question: is the managed fund dying out? That would be the steady conversion rate to ASX listed funds that these funds seem to be going through.
Managed funds to ETFs?
Now, it is well known that managed funds aren’t the most accessible investment vehicle. Outside the hassle of having to buy them outside the share market, managed funds also usually charge relatively higher fees than their listed counterparts. They also tend to have prohibitive minimum investment amounts, usually $10,000 or $20,000, but sometimes far higher.
That rules these vehicles out of contention for many retail investors.
And it seems the managers of some funds have woken up to this. Take the Hyperion Global Growth Fund. This is a fund that has been around since 2014. It has also built an objectively impressive track record of performance, returning an average of 24.7% per annum over the past 5 years.
But Hyperion clearly thinks that its managed fund status is holding it back. Last month, Hyperion listed this fund on the ASX as Hyperion Global Growth Companies Fund (ASX: HYGG). Investors can now buy units of this managed fund on the ASX, effectively making it an ‘active ETF’.
Some more movers
We have seen similar moves with other companies. Fellow growth investing high flyer Loftus Peak recently listed its Loftus Peak Global Disruption Fund (ASX: LPGD) as a listed fund as well. Again, Loftus Peak had been enjoying solid performance figures (25.27% per annum since 2016), but clearly decided that it could attract more investors by listing on the share market as well.
Magellan has also recently changed its fund structure so all of its funds now have ASX listings, such as the Magellan High Conviction Trust (ASX: MHH).
Clearly, this is the direction the winds are blowing for the managed fund. We could well be seeing the beginning of the end of the old managed fund structure as we know it. Perhaps the ASX will eventually be home to all funds one day, rendering the terms ‘listed’ and ‘unlisted’ redundant.
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Motley Fool contributor Sebastian Bowen owns shares of Magellan High Conviction Trust. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.