Investment basics
A managed fund is where your money is pooled together with other investors. Instead of owning the investments yourself, like when you buy shares directly, the fund owns the underlying investments and an investment manager buys and sells the assets on your behalf.
Investing in a managed fund allows you to diversify your investment portfolio for a relatively small initial outlay. When you invest in a managed fund you are buying units in that fund.
To learn more, read about managed funds.
An exchange traded fund (ETF) is a managed fund that you buy and sell on the stock exchange.
ETFs come in different shapes and sizes—shares or bonds, domestic or international, small cap or large cap, hedged or unhedged. They can also be sector specific products such as property, commodities (such as gold and oil) and banks.
There are also diversified ETFs that offer low-cost access to thousands of securities across a wide variety of asset classes in a single trade.
To learn more, read about exchange traded funds (ETFs).
Vanguard exchange traded funds (ETFs) and managed funds generally provide access to the same underlying asset class.
For example, the Vanguard Australian Shares Index ETF and the Vanguard Australian Shares Index Fund own the same underlying assets.
The difference between the two is that a managed fund is not listed on a stock exchange, whereas an ETF is and thereby enables greater trading flexibility, liquidity and intraday pricing. Your choice will come down to which type of investment vehicle best suits you.
You can learn more about managed funds and ETFs in the Learn section of the Vanguard website.
Index funds are a way of gaining exposure to an entire investment market. Most investment markets have an index that measures their value over time.
There is an index that covers almost every industry sector and asset class, including Australian and international shares, property, bonds and cash. For example, the Vanguard Australian Shares Index Fund tracks the S&P/ASX300 index, which contains the top 300 companies listed on the ASX.
Index funds offer two distinct advantages:
- Investing in all or a representation of securities in a market index can maximise diversification and reduce risk.
- Buying and holding securities over the long term reduces volatility and investment costs (including tax) and can lead to better returns in the long run.
Active fund managers usually try to outperform the market index by choosing a selection of securities they believe will collectively exceed the returns from a benchmark index.
They tend to hold fewer securities than index funds. Traditionally, they also tend to charge higher fees as they have higher costs due to the need for research analysts as well as transaction costs from trading securities more often.
The Vanguard difference
At Vanguard, we offer both index funds and low-cost active funds.
Our approach to both index and active management is always shaped by our low-cost high-quality investment philosophy that we believe delivers the best long-term value for our investors.
An IDPS is an 'Investor Directed Portfolio Service', which is an online service where an investor can access a variety of investment instruments all under one account. You can read more in the Vanguard Personal Investor Part A – Investor Guide and the Vanguard Personal Investor Part B – Statement of Additional Information.
A corporate action is any activity initiated by a company, or one that is initiated externally, that has a material impact on its listed shares.
Corporate actions include activities such as dividend payments made to shareholders, capital raisings, and takeover offers.
