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Investment Advice and Planning: Strategy - Module 3.4 Managed Portfolios - Structures

Edward Ketterer • Dec 13, 2021
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From the foundation of a Managed Portfolio a Strategy takes form and built through a structure that best represents the considerations and outcomes to be achieved.


When we consider what best represents a Managed Portfolio we can start with the following structures – Mutual Fund, Unit Trust, and more recently Exchange Traded funds (ETFs) along with a number of other structures. To provide a context we start with an outline of each.


Mutual Fund: Is an incorporated investment vehicle that pools monies from individual investors through the purchase of shares in the Mutual Fund which invests into a targeted selection of securities i.e., Equities, Bonds, and other investable assets with a view towards creating capital gains, income, or a combination of both. The funds targeted investment or investments are defined through a prospectus which provides details on how the investment is selected and the financial returns that such investments are aimed at potentially creating. This type of investment vehicle is also known as an open-ended fund which allows an unlimited number of investors to participate as compared to a closed-ended which restricts the number investors that can participate and the amount of monies invested. Depending on the jurisdiction such funds may be described in other terms i.e., SICAV – “société d'investissement à capital variable” or OEIC – “open-ended investment company” and in general a “Collective Investment Scheme “.
Unit Trust: Is an un-incorporated investment vehicle that is established under a trust deed and investors rather than being shareholders are recognized as beneficiaries of the trust. The Trust pools monies from individual investors through the purchase of units in the Unit Trust which invests into a targeted selection of securities i.e., Equities, Bonds, and other investable assets with a view towards creating capital gains, income, or a combination of both. The Unit Trust targeted investment or investments are defined through the Trust Deed which provides details on how the investment is selected and the financial returns that such investments are aimed at potentially creating. A Unit Trust can be either open-ended or closed-ended and there are variations i.e. Business Trust and Unit Investment Trust.

Exchange Traded Funds (ETF): Where created in the 1990’s and provided investors with a low-cost way of investing into the equivalent of an Index or sector by offering a passive management style along with a degree of diversification. Later actively managed ETFs came into being from which a manager would deviate from what ever benchmark the ETF is emulating to outperform the set benchmark. When compared to Mutual Funds and Unit Trusts the most significant difference is the cost incurred by the investor. Having said that do not be surprised when ETFs become a part of the investment strategy of a Mutual Fund or Unit Trust.

Hedge Funds: Whilst considered a fund is generally characterized as an alternative investment and when compared to the structures in this article is aimed at institutional investors along with high-net-worth individuals and as such entry costs are much higher in money terms and necessitate the participation of an experienced investor along with the advice or guidance of an investment advisor preferred. It is noted here to provide context and differentiation or at the very least to avoid confusion with the other structures and will be covered in articles to follow.

Other Fund Structures: There are a number of variations on the above structures as follows:
  • Manager of Managers (MoM) Fund
    Where an investment manager with a proven track record is selected and allocated a portion of a fund reflecting their experience to provide expertise in running that aspect of the fund.
  • Fund of Funds (FoF)
    Is exactly as it sounds – in essence it is the selection of existing investment funds and is considered a multi-Manager approach to investing.
  • Umbrella Fund (UF)
    Is a fund that differs from the others in “Other Fund Structures” due to its arrangement with the creation of a master fund covering sub-funds that operate as individual funds. A UF can also include insurance cover for individual investors under the master fund.

The advantage of these structures are the potential to reduce costs of entry for a smaller amount of monies invested into securities and investable assets that would otherwise be difficult to invest in. They can also provide diversification across equities, bonds, and other investable assets at what is considered a reasonable cost along with a higher level of liquidity and a professional investment manager to select and manage the underlying investments that provide the structures performance as compared to its outlined mandate. To provide these advantages there are fees known as an “Expense Ratio” and is based on a percentage value of the underlying investments and is more commonly known as the management fee. Other expenses are charged against the structure known as a load which is a payment for the placement of monies into the structure or as operational expenses not covered in the Expense Ratio.

It should be noted that this article and all articles published by Creative Coach Online are for information purposes only and should not be taken as advice. It is essential to discuss the appropriateness of any Strategy with a licensed / registered professional. For more details, please visit https://www.creativecoachonline.com/disclaimer

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