Managed funds should be 'prepared to take less'

Two experts have said managed funds would be a more popular investment if they "took a little less for themselves".

Speaking at the Stockbrokers and Investment Advisers Association's (SIAA) 2025 conference, experts working across listed investment companies (LICs) and exchange-traded funds (ETFs) took aim at managed fund fee structures.

During a "debate" over ETFs versus LICs, Australian Foundation Investment Company (AFIC) managing director Mark Freeman and VanEck deputy head of investments Jamie Hannah agreed that managed funds have put themselves in a bad position over the fees they charge.

"They've got themselves into that a bit, because there are a bunch [of managed funds] that probably look okay pre fees, but they are so fixated on charging high fees and performance fees when things go well, and if they were prepared to take less for themselves and charge a lower fee some of them might be alright," Freeman said.

"Some of the numbers that I've seen that some fund managers take out of products when they have a burst of great performance, whether that's in LICS with a manager or just a managed fund, might appear over the top and you take money from investors into your own pocket. I'm not a big fan of that."

Hannah agreed, saying while there is a place for active management, the fees in the space outweigh the performance of the product when there are plenty of alternatives available.

"Active management is not dead. There is absolutely a case for active management, and the active manager will always be around. We run active funds as well. It's not just passive. So, the active manager is going to continue to be there," Hannah said.

"But I think now there's ways to easily assess the performance of your active manager. So, a lot of them, generally, in the past, have followed factors like a quality factor or a value factor, and we can easily see if that underlying active manager is tracking a factor, because our ETFs track a factor.

"We can easily say, 'they're just a straight quality factor. You're paying 1.5% for their performance, and you can get the exact same thing here for 40 basis points, and it performs nearly identical'. And they're the ones where we will be winning business."

Hannah said active management needs to evolve to its "next iteration" where they are able to offer value outside of a trackable factor in order to stay relevant.

"They need to be adding what we'd call proper idiosyncratic risk to the portfolio, which is out of alignment with a general index. And if they're able to do that and capitalise on it, then that's where the focus should be on active management," he said.