Managed funds are a popular investment option for many Kiwis, both new and experienced investors. However, like any investment, they come with both advantages and disadvantages. You might be wondering, are Managed Funds a good investment? This article explains some of the best things about Managed Funds, as well as some of the potential risks of Managed Funds.
First, let’s define how a Managed Fund works. A Managed Fund is an investment where money from multiple investors is pooled together and managed by a professional fund manager, like Generate, and carefully invested in a mix of investments—such as shares, bonds, property, and cash—aimed at generating returns based on the fund’s strategy and objectives.
Managed Funds are commonly used for long-term investing, such as saving for retirement, wealth building, or financial planning.
Did you know your KiwiSaver fund is actually a type of managed fund? It operates under the same principles but comes with additional rules specific to KiwiSaver schemes.
Let’s look at some of the best things about investing in a Managed Fund.
Pros of investing in a managed fund
1. Flexibility
One of the best things about Managed Funds is their flexibility. Investors can generally deposit or withdraw funds at any time, making them a more accessible investment option compared to other types of investments that may have lock-in periods, such as KiwiSaver or a term deposit.
With Generate Managed Funds, you can start investing with as little as $100 and add to your investment through regular direct debits or occasional lump sums when you want to.
You also have the flexibility to split your investment across various Generate Managed Funds, to suit your investment timeframe and risk appetite.
2. Ease of use
Managed Funds require minimal effort. Once you have chosen a fund and invested your money, our expert fund managers take care of the rest. This makes managed funds one of the best options when you don’t have the time, patience or expertise to actively research and manage your investment.
All you need to do is decide on your chosen fund – you can do this by yourself, or via a no-obligation chat with a Generate adviser. Click here to see the range of Generate Managed Funds to choose from.
3. Professional management
With Generate Managed Funds, your investment is expertly managed by our experienced Portfolio Managers, who have the knowledge and expertise to make informed investment decisions. They analyse market trends, assess risks, and diversify investments to maximise returns while managing risk effectively.
At Generate, we’re proud of our expert investment team and the track record of consistently strong returns they’ve delivered for investors:
- The Generate Focused Growth Managed Fund ranked 1st for 5-year returns to 31 January 2025 in the multisector aggressive category*
- The Generate Thematic Managed Fund ranked 1st for 1-year returns to 31 January 2025 in the NZ multisector aggressive category*
Generate Managed Funds performance is shared monthly on our fund performance page, and while they do vary each time, we’re proud of our consistently strong results. This page is updated monthly.
4. Potential for higher returns
Compared to traditional fixed-interest savings accounts or term deposits, managed funds generally offer higher returns over the long term. This makes them one of the best investments for those looking to grow their wealth over time.
The Generate investment team has consistently delivered strong returns. Check out all of our Managed Funds performance here.
5. Regulatory compliance and peace of mind
In New Zealand, managed funds operate under financial regulations and compliance standards, ensuring that investors' money is handled responsibly. They are governed by financial market laws that help protect investors and maintain transparency.
Managed Funds are generally governed by the Financial Markets Conduct Act 2013 (FMC Act), and specific details for managed funds come within the Financial Markets Conduct Regulations 2014.
All funds invested through Generate are held by an independent custodian (Public Trust) to ensure the security of our clients’ funds.
While every investment involves a degree of risk, you essentially know what you’re getting with a Managed Fund.
This is not always the case in other less regulated markets such as crypto or with ‘get rich quick’ schemes that seem too good to be true.
6. Diversification
Managed funds typically invest in a wide range of assets across different sectors and markets. This diversification reduces risk compared to investing in a single asset (e.g. one company or particular bond), helping to balance any losses with gains. As the saying goes, don’t put all your eggs in one basket. Diversification is one of the best things about investing in a Managed Fund.
Generate Managed Funds invest in a wide range of carefully chosen assets, and our quarterly fund updates also show the top 10 investments for each fund, so there’s transparency around how and where your money is invested.
7. Access to a variety of investments
Through Managed Funds, investors can access asset classes that might otherwise be difficult to invest in directly, such as wholesale funds, international markets, property, or specialised industries.
Every investment comes with risks, so it’s important to consider what are the risks of investing in a Managed Fund. While Managed Funds offer long-term growth potential, they aren’t a get-rich-quick option, and like all investments, they can fluctuate in value depending on market conditions.
Cons of investing in a managed fund
1. Market fluctuations and risk
Investing in Managed Funds exposes your money to market ups and downs. There is no guarantee of returns, and past performance does not necessarily indicate future results. Investors need to be prepared for fluctuations in value, especially during economic downturns. A long-term investment timeframe is usually recommended.
Generate Managed Funds offer a range of options with varying levels of risk and return, so if you have a more conservative risk profile, and/or perhaps a shorter investment timeframe, you might prefer a conservative Managed Fund instead of one of our more aggressive funds.
If you’re not sure about the best Managed Fund for your risk profile, it’s easy to book a no-obligation chat with one of our advisers.
2. Less suitable for short-term investment
Managed Funds are typically better suited for long-term investment strategies. While they can be liquid, their value can fluctuate, making them less ideal for investors looking for short-term gains or needing quick access to their funds without potential losses.
Still, as mentioned above, there are still Generate Managed Funds options available for those with a shorter investment timeframe – like our Conservative Managed Fund.
3. No additional contributions from employers or government
Unlike some investment schemes such as KiwiSaver, Managed Funds do not benefit from employer or government contributions. This means that your returns depend solely on market performance and fund management, without the additional financial boost that some retirement savings plans provide.
However, on the flip side this means you don’t need to worry about meeting a certain threshold of deposits (like you need to do with KiwiSaver to get the government contribution), and you also don’t need to commit to a percentage contribution coming out of your salary or wages.
5. Limited control over investment decisions
Since professional fund managers make all investment decisions, individual investors have little to no control over what assets are bought or sold within the fund.
That’s normally a good thing, as you don’t have to worry about it, but some people might prefer to actively manage their investments.
The overall verdict - the pros and cons of managed funds
Managed Funds can be one of the best ways to grow your wealth over time with minimal effort, benefiting from expert management and then potential for higher returns than other types of investments.
They make it easy for anyone to get started, even if you’ve never invested before and you can deposit or withdraw at your own pace. They’re diversified and give everyday investors access to a wide range of investment opportunities.
Not all Managed Funds are created equal and the key thing to look for is a track record of consistent performance. Thanks to our expert investment team at Generate, we’re especially proud of our Generate Managed Funds.
In the most recent Morningstar report (to the year ending 31 January 2025):
- The Generate Focused Growth Managed Fund ranked 1st for 5-year returns in the multisector aggressive category*
- The Generate Thematic Managed Fund ranked 1st for 1-year returns in the NZ multisector aggressive category*
However, it's important to remember that past performance is not a guarantee of future results. Returns are influenced by financial markets, which can be impacted by global events, economic trends, company announcements, and various other factors.
Before investing, it’s important to assess your financial goals, risk tolerance, and investment timeline to determine whether Managed Funds are the best investment choice for you.
You can do this yourself and apply for a Generate Managed Funds account online here, or email us or phone us on 0800 855 322 for a no-obligation chat about your options.
* Source: Morningstar Direct Performance Report calculated as of 19.02.2025. Returns are after fees and before tax. The Generate Focused Growth Managed Fund returns ranked 1st out of 8 NZ OE Multisector - Aggressive Category Funds for 5-year returns, and 1st out of 9 funds for 3-year returns as of 31.01.2025. The Generate Thematic Fund ranked 1st out of 17 NZ OE Multisector - Aggressive Category Funds for 1-year returns as of 31.01.2025.
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