Managed investments are often structured using a unit trust whereby entities (including companies and individuals) can purchase units in the fund (openly if it is a public fund). If the underlying asset is a growth asset (inclusive of shares and property) then the value of the unit trust will be dependent of how the assets are fairing in the market place along with how they are managed (good decisions will obviously mean the value of the fund will increase over funds where poor decisions are made). Some funds may leverage their assets and retain returns (e.g. dividends) aiming for higher capital returns where other funds may be focusing on delivering returns regularly in which case the unit price would be less, all other things being equal. In the current environment the value of “market linked” investments (those in shares, property ect.) will most likely have fallen because of the systematic risk which has applied to the market generally. The government’s decision to guarantee some deposits has caused the market to consider their own funds and people are paying a more focused interest in them inclusive of whether their fund has the guarantee.
Unit trusts with growth assets under management would not be classified as deposits and would therefore not qualify for a guarantee. The fundamentals of the investment would conflict with such a guarantee. Whilst it is uncomfortable to see negative returns they should be expected at certain times because of the volatility of the assets class. Monetary assets can also be purchase using a unit trust structure for instance a cash management trust. These cash management trusts are not guaranteed generally by government (although some may be afforded this protection in this current environment). Normally any change in the value of the monetary assets will affect the applied interest rather than the unit price which will be locked. You may wonder why a monetary asset can change in value; the reason is the time frame that is attached to it.
Dr Antony Young of RMIT University explains “if a 10 year bond was locked at 8% and the market moved to 7% then the bond would increase in value and if it was sold it would be sold at a premium. Obviously if the market interest rate went to 9% a discount on sale would apply”. Superannuation funds have an extra level of protection against withdrawals from funds that don’t have guarantees in that they are locked until conditions of release (for instance retirement) are met.
The fundamentals of this argument are contained in the Diploma of Financial Services (Financial Planning) often refereed to as Diploma of Financial Planning which is often RG146/PS146 compliant. These courses must be undertaken to give personal advice or general advice in such areas managed investments which is the topic of this article. Other areas include Superannuation, Derivatives, Securities, Financial Planning and insurance. To be PS146/RG146 compliant Financial Planners (Financial Advisers) are required to undertake a course to make them “ASIC Compliant” that is undertake a course which is listed on the ASIC training register. RG146/PS146 training or RG146 / PS146 courses are undertaken by para-planners and financial planners.