Listed versus unlisted funds

Managed funds have recently become very popular due to the automatic diversification they offer. Investors who do not have much experience in investing will also find these products useful as all the investment decision making has been done for them. Managed funds can be listed or unlisted. In this article we discuss the differences between the two.

Listed Funds:

  • These are funds which are listed on the Australian stock exchange and traded like shares. The price of listed funds changes rapidly depending on the demand of the managed fund and what is happening with the broader market. The value of listed managed funds can be affected by the sentiment of investors. Hence these listed funds can trade on a premium or discount to its intrinsic value based on how the investors perceive these funds.
  • These listed managed funds can be rather volatile as price may not reflect underlying assets
  • As these are traded on the stock exchange, these funds are valued every day.
  • There is higher level of liquidity with these funds as investors can redeem their units by just selling on the stock exchange.
  • When it comes to listed property trusts, gearing can be higher when compared to unlisted trust
  • Listed products such as property trusts tend to have more complex investment structures

Unlisted Fund:

  • Unlisted funds are not traded on the Australian stock exchange. Investors need to apply for units with the managed funds to invest in these products.
  • As they are not traded on the exchange, the volatility of these funds is lower.
  • Unlisted fund can also provide a steady form of income compare to listed funds as they have long term contracts in place with counterparties giving investors certainty with income.
  • There is less liquidity with unlisted funds. Investors are required to submit a redemption request to the fund to redeem their units. This redemption process can take time which means the price of the units may have moved. Some unlisted funds may also require you keep money in the fund within a certain time frame. Also, unlisted managed funds can freeze redemptions if too many investors want to withdraw their money all at once.
  • As these products are not traded on the exchange, they are only valued monthly, quarterly, six-monthly or annually. The valuation of these funds is based on the underlying assets held.
  • These products are more suitable for longer term investors.
  • Unlisted property trusts tend to have lower gearing levels
  • These unlisted property trust tend to have simple investment structures where property is bought and held long term while rental income is collected during the holding period.

Lauren Hua is a private client adviser at Fairmont Equities.

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