Investment Analysis

Analysing managed investments

Analysing managed investments


Managed investments analysis (which includes managed funds, ETFs, and LICs) is one of the more difficult area’s for individual investors. There is not much information out there on how to go about it, and its not like fund managers have their doors open so that anyone can just walk in and start asking a bunch of questions. This is the area where individual investors are probably most reliant on established research houses like Lonsec, who have the experience and depth of resources to provide this type of analysis.

With this in mind, this article will highlight how Lonsec, as a research house, goes about it’s managed funds analysis, to provide individual investors some insight into what is involved and how it works.


Lonsec’s research process is premised on the belief that managing money is a combination of ‘art’ and ‘science’ and that there is more than one way to manage money; there are, however, a number of critical ingredients that combine to produce a quality financial product.

Lonsec believes that investment research should be forward-looking, and not just all about looking at past performance. Qualitative factors generally account for 80 percent of the rating for most mainstream asset classes, with Lonsec’s assessment of people and process having the greatest impact on the research outcome.

Within the quantitative component (this is all about the numbers), generally contributing 20 percent of the research outcome, there is an emphasis on the amount and consistency of returns, the degree of ‘activeness’ to deliver out-performance, the volatility of returns and the defensiveness of the financial product over three years and beyond.

The Process

Lonsec’s research process follows a structured framework of assessing a range of qualitative and quantitative factors and then scoring these attributes relative to other financial products within the same sector.

Lonsec does not believe there is a single ‘best’ way to manage money and the research process we apply accommodates a range of investment approaches and styles.

The following outlines the range of factors that we look at, using a small cap share fund as the example.

People & Resources

The first step is assessing people & resouces via contact with both senior and junior members of the investment team and considers:

• Profitability, Business ownership structure and Track Record
• Considers, experience, team size, quality, stability, management of key person risk, qualifications, track record, co-tenure, investment ‘culture’ and alignment of interests.

Philosophy (style)

This step considers investment philosophy, and:

• Is it clearly articulated
• Is it consistent — ‘true to label’

Lonsec considers key valuation metrics, performance in differing market conditions, and output from style research tools. Holdings based style analysis software is utilised in this part of the process.


This is all about how the manger generates investment ideas and looks at:

• Intellectual Property
• Breadth and Edge
• Investment tools – – Screening process, fundamental analysis, valuation methodology, and efficacy of analysts’ models.

Lonsec typically requests that managers explain multiple investment theses as a means of demonstrating the investment process at work and gauging consistency with the fund manager’s stated investment style and objectives.

Portfolio Construction

When constructing their portfolios, is there a:

• Clear link from investment research
• Buy and Sell discipline
• Management of unintended bets
• Alignment with investment objectives

Risk Management

Lonsec also looks at a fund manager’s risk management capabilities via:

• Risk awareness of process
• Monitoring, accountability, methodology and frequency
• Pre- and post-trade compliance
• Risk management tools


What are the funds fees – management fees and any performance fees

And what are their fees relative to investment objectives and fairness


In certain sectors, the amount of assets under management relative to the size of the market invested in (i.e. the Manager’s ‘capacity’) is considered to be critical to the funds ability to deliver out-performance. Hence investor focus and evidence of adherence to capacity limits are key considerations in the rating.

Research done for you

As evidenced from all the above, the managed investment research process can be a time consuming and resource intensive task at the professional level.

Thankfully, the outputs of Lonsec’s research process is now readily available to DIY and self managed investors. The research table provides our members with the ability to filter ETFs, LICs, and managed funds by a range of criteria (including the important “Highly recommended” and “Recommended” ratings) along with the product viewpoint reports for more detail on each investment.

CLICK HERE to find out more on the full spectrum of research available.

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