Managed Assets: what are they and how do they work?

Managed assets allow investors to delegate the handling of their capital to financial professionals or specific financial instruments. But how does it work in practice? In this article, learn the key concepts and explore the various types of managed assets and how they function.

What are managed assets?

Definition: Managed assets encompass a range of services dedicated to investing and overseeing investors’ capital. This type of asset management is often handled by professionals who aim to maximise returns based on the client’s risk profile and financial goals or by passive financial instruments that automatically diversify capital.

When individuals entrust their savings to specialists, such as banks or asset management companies, they use a managed assets service. Managed assets can include investments in stocks, bonds, or digital assets and extend to insurance policies or pension funds. The spectrum of managed asset strategies is broad, with each approach offering unique risks, opportunities, and characteristics suitable for different types of investors.

How does asset management work?

Now that we know what managed assets are, let’s look at how they work, from the decision to invest capital to the actual execution of asset management strategies. This process begins with identifying the investor’s needs and defining their risk profile, which depends on factors like age and lifestyle.

After this, the asset manager, advisor, or individual investor formulates a strategy aligned with the set goals and risk tolerance, selecting the most appropriate types of investments.

Let’s examine the methods used by asset managers, financial advisors, and investors to manage savings and assets.

Active vs passive asset management

The approach to asset management varies depending on the management style applied. In active management, professionals choose specific stocks, bonds, or commodities based on market analysis and forecasts to try to outperform benchmarks.

In contrast, passive management involves investing in indices that follow the performance of a selected group of assets, such as the S&P 500.

Investment Funds

One of the most common managed asset tools is mutual funds. These funds pool money from multiple investors and allocate it across a diversified portfolio of assets. Fund managers select and monitor investments on behalf of investors, who hold shares in the fund proportional to their investment.

Active asset management through mutual funds has a cost, often over 2% annually, but provides flexibility in selecting assets.

Exchange-traded funds (ETFs)

ETFs are prominent in passive asset management. These instruments track the performance of specific indices, such as the S&P 500, which includes the top 500 publicly traded companies in the United States. ETFs can also mirror the performance of commodities (like gold or oil) or digital assets such as Bitcoin.

ETFs’ primary advantage is their low cost. Unlike actively managed funds, annual fees for ETFs are typically much lower, around 0.2%.

Life Insurance and Pension Funds

Life insurance and pension funds represent a distinct type of managed asset designed to safeguard capital against various risks. They have specific objectives different from those of other investment tools. Capital invested in these instruments can also be allocated using the abovementioned methods.

In the stock market, pension funds favour investments in the United States, with many holdings in American equities. Regarding bonds, pension funds often allocate assets across Europe, the US, and the UK. Finally, life and health insurance, which require careful regulation, are generally allocated to low-risk assets like bonds.

Conclusion

Managed assets provide a versatile solution for investors seeking to grow their capital with the assistance of professionals or specific financial instruments. Whether one chooses active management, aiming to outperform benchmarks with carefully selected investments, or passive management, which replicates specific indices at a lower cost, managed assets offer various options to suit multiple risk profiles and financial goals.

Maximising the benefits of managed assets requires understanding your risk profile and setting clear goals. Working with financial advisors or choosing the right tools aligned with your investment strategy can help optimise returns and effectively manage risks. In today’s complex economic environment, knowing how asset management works is essential for building and preserving wealth over time.