Three common vehicles in Australia are exchange-traded funds (ETFs), unlisted managed funds, and separately managed accounts (SMAs). Each provides access to diversified portfolios, but they differ in structure, cost, tax treatment, and the degree of control they offer. The differences are quiet ones. They tend to matter most at tax time, when switching providers, or when portfolios grow large enough that small structural details start compounding.
Key takeaway
ETFs, managed funds, and SMAs differ in ownership structure, cost, tax treatment, minimums, and transparency, and the trade-offs between them depend on portfolio size, tax situation, and operational preferences.
This article explains how each vehicle works, compares them across key dimensions, and outlines what those differences mean in practice.
What each vehicle is#
Exchange-traded funds (ETFs)#
An ETF is a pooled investment fund listed on a stock exchange. In Australia, ETFs trade on the ASX just like ordinary shares.¹ Investors buy and sell units through a broker during market hours, and the price fluctuates throughout the trading day based on supply and demand.
Most ETFs in Australia are structured as unit trusts. They may track a market index (such as the S&P/ASX 200), follow a rules-based strategy, or pursue active management. The distinguishing feature is the listing: because ETFs trade on an exchange, they can be bought and sold with the same mechanics as shares.
Managed funds (unlisted)#
An unlisted managed fund is a pooled vehicle where investors buy and sell units directly through the fund manager or via an investment platform.² Units are priced once per day (or less frequently), based on the fund's net asset value (NAV). There is no live market price during the day.
Managed funds can be passive or active. They have a long history in Australia, predating the widespread availability of ETFs. Many superannuation investment options are structured as managed funds, even if they are not always labelled that way.
Separately managed accounts (SMAs)#
An SMA is a portfolio of individual securities managed by a professional portfolio manager on behalf of a single investor.³ Unlike ETFs and managed funds, the investor in an SMA directly owns the underlying shares, bonds, or other assets. They are not pooled with other investors' holdings.
The portfolio manager applies a model strategy across client accounts, but each account holds its own securities. This structure gives the investor visibility over every holding and, in many cases, the ability to exclude specific securities or sectors.
SMAs in Australia are typically accessed through investment platforms (sometimes called "wrap" platforms) and are most common among investors working with financial advisers.³
How each is bought and sold#
The mechanics of transacting differ meaningfully across the three vehicles.
ETFs are bought and sold through a stockbroker, just like ASX-listed shares. An investor places a buy or sell order, and the trade settles through the standard T+2 settlement process. A brokerage fee applies to each transaction.
Managed funds are transacted through application and redemption forms, submitted either directly to the fund manager or through an investment platform. There is no brokerage. Instead, the fund may apply a buy/sell spread (a small percentage added to or subtracted from the unit price) to cover the fund's transaction costs. Processing times vary, but units are typically issued or redeemed at the next available NAV calculation.²
SMAs are transacted through the platform that administers them. When the portfolio manager updates the model, the platform executes trades across client accounts. The investor generally does not place individual buy and sell orders. Brokerage or transaction costs may apply, depending on the platform's fee structure.³
Sometimes the most consequential choice is not what to invest in, but the plumbing through which the investment flows.
Fee structures compared#
Fees are one of the more tangible differences between vehicles. The following table provides indicative ranges for the Australian market. Actual costs vary by provider and product.
| Fee type | ETFs | Managed funds (unlisted) | SMAs |
|---|---|---|---|
| Management fee / MER | 0.03% to 0.80% (passive); 0.50% to 1.20% (active) | 0.50% to 1.50%+ (active); 0.10% to 0.50% (passive) | 0.20% to 0.90% (investment management) |
| Brokerage | Per trade (typically $5 to $20) | None (buy/sell spread instead) | Varies by platform; sometimes bundled |
| Buy/sell spread | Market bid-ask spread | 0.05% to 0.30% per transaction | Generally none (direct market execution) |
| Platform / administration fee | None (unless held on a platform) | 0.00% to 0.60% (platform-dependent) | 0.20% to 0.60% (platform fee common) |
| Performance fees | Rare in ETFs | Common in active funds (10% to 20% of outperformance) | Uncommon |
For ETFs, the total cost is typically the MER plus brokerage. For managed funds, total cost is the MER plus any buy/sell spread plus any platform fee. For SMAs, total cost is the investment management fee plus the platform administration fee plus any brokerage.⁴
The lowest headline fee does not always correspond to the lowest total cost. The interaction between management fees, transaction costs, and platform charges determines the actual expense.
Tax efficiency differences#
Tax treatment is where the three vehicles diverge most sharply, and where the differences can have the largest financial impact over time.
ETFs#
Australian ETFs structured as trusts distribute taxable income to unitholders, which can include dividends, interest, and capital gains realised within the fund.¹ However, ETFs have a structural feature that can improve tax efficiency: the "in-specie" creation and redemption process. When large investors (authorised participants) redeem ETF units, the ETF can transfer underlying securities rather than selling them. This can reduce the capital gains realised inside the fund, meaning fewer gains are distributed to remaining unitholders.⁵
This does not eliminate tax. It can reduce "embedded" capital gains, which is the accumulation of unrealised gains within a pooled fund that eventually get distributed to unitholders who may not have benefited from the original price appreciation.
Managed funds (unlisted)#
Unlisted managed funds also distribute taxable income, but they generally lack the in-specie redemption mechanism available to ETFs. When investors redeem units, the fund may need to sell assets to raise cash, potentially triggering capital gains that are distributed to all remaining unitholders.²
This creates a well-documented issue: an investor can receive a capital gains distribution from a fund they recently joined, generated by profits that accrued before they invested. The embedded capital gain problem tends to be more pronounced in funds with high turnover or large redemption flows.
SMAs#
SMAs offer the most direct tax treatment because the investor owns the underlying securities individually. There are no pooled distributions. When the portfolio manager buys or sells, the capital gain or loss belongs to that specific investor's account.³
This structure allows for "tax-lot control," meaning the investor (or their adviser) can choose which specific parcels of a security to sell, potentially managing capital gains more precisely. It also means one investor's decision to exit does not trigger tax consequences for other investors, because there is no shared pool.
The tax advantage of SMAs is most relevant for larger portfolios in higher tax brackets, where the ability to manage capital gains timing and parcel selection can have a meaningful impact.
Minimum investment requirements#
Access thresholds differ substantially.
| Vehicle | Typical minimum (Australia) |
|---|---|
| ETFs | One unit on-market (often $50 to $500, depending on the ETF price and broker minimums) |
| Managed funds (unlisted) | $1,000 to $5,000 for initial investment; some require $500+ for additional contributions |
| SMAs | $25,000 to $100,000+ depending on provider, platform, and strategy |
ETFs have the lowest barrier to entry because they can be purchased one unit at a time. Some brokers set minimum trade values (for example, $500), but the ETF itself has no minimum.¹
Managed funds typically set their own minimums, which can vary from $1,000 for retail investors to $500,000 or more for wholesale or institutional share classes.²
SMAs require higher minimums because the portfolio manager needs to buy the underlying securities individually. A model portfolio holding 30 stocks requires enough capital to purchase meaningful positions in each. Below certain thresholds, the portfolio cannot be properly replicated.³
Transparency and visibility#
The degree to which an investor can see what they own varies across vehicles.
ETFs are generally transparent. Most ETF issuers in Australia publish their full holdings daily or with a short delay. Because ETFs track known indices or disclosed strategies, investors can typically verify what the fund holds at any given time.¹
Managed funds vary widely. Some publish full portfolios; many disclose only their top holdings or sector allocations. Active managers may be reluctant to disclose positions because doing so could reveal their strategy to competitors. Regulatory requirements ensure certain disclosures, but day-to-day portfolio visibility is not guaranteed.²
SMAs provide full transparency by default. The investor owns each security directly and can see every holding, every transaction, and every cost. This is sometimes the most underappreciated feature of the SMA structure: there is nothing hidden because there is no pooling.³
For investors who value knowing exactly what they own at all times, the transparency differences between these vehicles are not trivial.
Portability and ownership structure#
Portability refers to how easily holdings can be moved between providers without selling.
ETFs held on the ASX are recorded through CHESS (Clearing House Electronic Subregister System) under a Holder Identification Number (HIN). This means ETF holdings can typically be transferred between brokers by re-sponsoring the HIN, without triggering a sale or a taxable event.⁶
Managed funds are held on a unit registry maintained by the fund manager or a registry provider. Transferring units between platforms can be possible, but it often involves paperwork, processing delays, and sometimes restrictions depending on the platform. In some cases, switching platforms requires redeeming and reapplying, which triggers a disposal for tax purposes.²
SMAs involve direct ownership of securities, which means the underlying holdings can, in principle, be transferred. However, the process depends on the platform. If an investor leaves an SMA, the securities can sometimes be transferred to a broking account (in-specie transfer), preserving the cost base and avoiding a taxable event. Platform-specific rules apply, and not all providers make this straightforward.³
The ability to leave a provider without selling everything is a form of investor protection that receives less attention than it warrants.
Comparison summary table#
| Dimension | ETFs | Managed funds (unlisted) | SMAs |
|---|---|---|---|
| Listed on exchange | Yes (ASX) | No | No |
| How to transact | Broker order | Application/redemption form or platform | Platform (manager executes) |
| Pricing | Live market price | Daily NAV | Individual security prices |
| Ownership | Units in a trust | Units in a trust | Direct ownership of securities |
| Typical MER range | 0.03% to 1.20% | 0.10% to 1.50%+ | 0.20% to 0.90% (plus platform) |
| Minimum investment | ~$50 to $500 per unit | $1,000 to $5,000+ | $25,000 to $100,000+ |
| Tax efficiency | In-specie mechanism may reduce embedded gains | Embedded CGT risk from pooled redemptions | Direct ownership; tax-lot control |
| Transparency | High (daily holdings disclosure common) | Variable (top holdings or sector level) | Full (investor owns each security) |
| Portability | CHESS transfer (HIN re-sponsoring) | Unit registry transfer (may require redemption) | In-specie transfer possible (platform-dependent) |
| Customisation | None (fixed portfolio) | None (fixed portfolio) | Some (exclusions, tax management) |
Closing#
ETFs, managed funds, and SMAs are three distinct vehicles for accessing investment portfolios. They differ in structure, cost, tax treatment, transparency, and the degree of control available to the investor. None is universally superior. ETFs offer low cost and accessibility. Managed funds provide access to strategies and managers that may not be available on-exchange. SMAs offer direct ownership, tax control, and full visibility, but require larger capital and typically involve platform infrastructure.
The choice between them is a structural one, shaped by portfolio size, tax circumstances, platform preferences, and how much visibility the investor wants over what they own. Like most decisions in investing, the trade-offs are real, and the right answer depends on context.
Summary#
ETFs, managed funds, and SMAs are three common investment vehicles in Australia, each with distinct trade-offs in cost, tax efficiency, transparency, and minimum investment requirements. ETFs trade on the ASX with low fees and high liquidity, managed funds are accessed through fund managers or platforms with daily unit pricing, and SMAs provide direct ownership of underlying securities with greater tax control but higher minimums. The structural differences between vehicles affect how holdings are taxed, how portable they are between providers, and how much visibility the investor has over the portfolio.
Sources#
- ASX. (n.d.). Exchange traded products. https://www.asx.com.au/investors/investment-tools-and-resources/exchange-traded-products
- Australian Securities and Investments Commission. (n.d.). Managed funds and ETFs. Moneysmart. https://moneysmart.gov.au/managed-funds-and-etfs
- Managed Accounts Holdings Limited. (2024). IMAP/Milliman Managed Accounts Report. Institute of Managed Account Professionals. https://imap.asn.au/resources/managed-accounts-report
- Vanguard Australia. (2024). Understanding investment costs. https://www.vanguard.com.au/personal/en/learn/smart-investing/understanding-fees-and-costs
- Gastineau, G. L. (2010). The exchange-traded funds manual (2nd ed.). John Wiley & Sons.
- ASX. (n.d.). CHESS (Clearing House Electronic Subregister System). https://www.asx.com.au/about/clearing-and-settlement/chess