Introduction:
There are different approaches or styles used to manage investments. Understanding the different investment styles can help you navigate the various managed investments and make you better equipped to choose the investment style(s) that suit you. Investment style refers to the investment approach that a professional investment manager uses to determine the selection of securities and the proportion invested in each security for the portfolio. Some of the common investment styles are defined below.

Active Manager:

Active fund managers aim to deliver investment returns above those generated, on average, by financial markets. For example, an active manager of Australian equities would attempt to beat the returns generated by the Australian sharemarket index. Active managers provide professional researchers and investment managers that seek opportunities to gain better returns than the relevant market index. They tend to charge higher expenses than passive managers partly due to the higher costs of accessing professional experts.

Passive Manager:

Passive fund managers, otherwise known as index managers, aim to equal the performance, on average, of a financial market. For example, a passive manager of Australian equities might aim to equal the returns of the S&P/ASX200.

Value & Growth:

Different fund managers use different investment philosophies to identify stocks that will deliver solid returns to investors.

• Value Managers: Look for shares that are undervalued by the rest of the market and have the potential to outperform when the market recognises their value.
• Growth Managers: Look for companies with faster expected future growth in earnings.

Analysts use different sets of financial metrics to categorise the value or growth potential as well as their judgment to determine the investment worthiness of a security or company.

GARP:

A GARP (Growth-at-a-Reasonable-Price) investment philosophy is an alternative to value or growth investing. A GARP manager looks for stocks that are cheap but also have potential for growth.

Style Neutral:

Style-neutral managers don’t employ a value, growth, or GARP investment philosophy. Their aim is to deliver consistent performance by avoiding a style bias.

Bottom-Up Investing:

Bottom-up investors are otherwise known as ”stock pickers” because their investment selection starts with an analysis of individual companies before considering industry and economic forecasts.

Top-Down Investing:

Top-down investors begin their stock selection process by considering economic forecasts and industry prospects. Stock selection is carried out later.

MER (Management Expense Ratio):

Every managed fund charges a management expense ratio (MER) to investors. MERs are charged to recoup the cost of running a fund and to provide payment to the institution managing your money. MERs are expressed as an annual percentage.

Manage-the-Manager:

A managed investment which invests the portfolio in several investment managers with different investment styles. The combination of the blended investment styles and approaches can provide a diversified investment and more reliable returns over time.

Risk Management:

A series of checks to ensure a fund manager’s portfolio does not contain any unintended risks or biases.

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.