Investment strategies 

The core-satellite approach to portfolio construction uses index tracking investments, such as ETFs, as the stable ‘core’ of the portfolio with carefully selected lowly correlated active investments, such as managed funds, as the ‘satellites.’ The advantages are that a sizeable portion of the portfolio is invested in the lower cost ETFs whilst the portfolio also benefits from the alpha that can be obtained from exposure to active, professionally-invested managed funds.

Most managed funds allow you to reinvest distributions back into the fund. Reinvesting distributions from a managed fund allows you to purchase more units and increase your investment in the fund. Whether you choose to reinvest your distributions may depend on whether you bought the fund for capital growth or for income purposes. You may also choose to use your distributions to invest in a different fund or other assets in order to diversify your asset portfolio.

Dividends or distributions reinvested are still treated as income and as such, are subject to tax.

While some exchange traded securities are suited to frequent trading, managed funds are generally designed to be held for the long term. This is because the investment manager may have invested the assets with a long term strategy in mind. The fund’s product disclosure statement outlines an investment time period.

In establishing a portfolio, investors often start with a strategic asset allocation (SAA). This sets the proportion to be invested in each asset class in order to achieve your investment objective. Managed funds can make it easier to gain exposure to assets such as international shares, giving you an efficient pathway towards achieving your investment objectives.  

After a period of investment, you may find that your initial asset allocation has changed, for example into a higher growth allocation. This is because some assets may grow more strongly than others and some assets may fall in value. Rebalancing your allocation can be done with new cash flows or by selling down and reallocating a portion of your portfolio. However if you are selling down assets, be aware of the tax consequences and seek tax advice.