Fund of funds
Information about Fund of funds
A "fund of funds" (FoF) is an investment fund that uses an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investing is often referred to as multi-manager investment.
There are different types of 'fund of funds', each investing in a different type of collective investment scheme (typically one type per FoF), eg. 'mutual fund' FoF, hedge fund FoF, private equity FoF or investment trust FoF.
An investment manager may actively manage your investment with a view to selecting the best securities. A FoF manager will select the best performing funds to invest in based upon the managers performance. This additional level of selection can provide greater stability and take on some of the risk relating to the decisions of a single manager.
Since a fund of funds buys many different funds which themselves invest in many different securities, it is possible for the fund of funds to own the same stock through several different funds and it can be difficult to keep track of the overall holdings.
Funds of funds are often used when investing in hedge funds, as they typically have a high minimum investment level compared to traditional investment funds which precludes many from investing directly. In addition hedge fund investing is more complicated and higher risk than traditional collective investments; this lack of accessibility favours a FoF with a professional manager and built in spread of risk.
Pension funds and other institutions often invest in funds of hedge funds for part or all of their "alternative asset" programs, i.e. investments other than traditional stock and bond holdings.
The industry has recently been criticized by some hedge fund managers for a reputation of holding a short-term view. Some hedge funds have even started turning away fund of hedge funds money. “It is really beginning to irritate those funds of hedge funds that approach their investments sensibly,” says one fund of hedge funds manager.[1]
A similar one is "Vanguard Life Strategy Moderate Growth", which invests in four other Vanguard funds, and again has no fee itself.
Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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There are different types of 'fund of funds', each investing in a different type of collective investment scheme (typically one type per FoF), eg. 'mutual fund' FoF, hedge fund FoF, private equity FoF or investment trust FoF.
Fettered or unfettered
Some investment managers offering retail FoF may limit the fund selection to only include the range of funds they manage; this type of arrangement is called a fettered fund of funds. Most FoF offerings include funds from various investment managers and are called unfettered fund of funds.Advantages
Investing in a collective investment scheme will increase diversity compared to a small investor holding a range of securities directly. Investing in a fund of funds arrangement will achieve even greater diversification.An investment manager may actively manage your investment with a view to selecting the best securities. A FoF manager will select the best performing funds to invest in based upon the managers performance. This additional level of selection can provide greater stability and take on some of the risk relating to the decisions of a single manager.
Disadvantages
Management fees for funds of funds are typically higher than those on traditional investment funds because they include part of the management fees charged by the underlying funds.Since a fund of funds buys many different funds which themselves invest in many different securities, it is possible for the fund of funds to own the same stock through several different funds and it can be difficult to keep track of the overall holdings.
Funds of funds are often used when investing in hedge funds, as they typically have a high minimum investment level compared to traditional investment funds which precludes many from investing directly. In addition hedge fund investing is more complicated and higher risk than traditional collective investments; this lack of accessibility favours a FoF with a professional manager and built in spread of risk.
Pension funds and other institutions often invest in funds of hedge funds for part or all of their "alternative asset" programs, i.e. investments other than traditional stock and bond holdings.
Criticisms of fund of hedge funds
While funds of funds conceptually can provide extremely useful services for many hedge fund investors, they have been criticised for the significant incremental costs they impose. (The underlying hedge funds usually charge fees of between 1 and 2% of assets managed and incentive fees of 15–25% of profits generated. The funds of funds typically add additional fees of 1% and 10%, respectively). Moreover, fund-of-funds behavior has often exhibited crowd-following tendencies, suggesting the managers of these funds prefer to match indices rather than seek opportunities.The industry has recently been criticized by some hedge fund managers for a reputation of holding a short-term view. Some hedge funds have even started turning away fund of hedge funds money. “It is really beginning to irritate those funds of hedge funds that approach their investments sensibly,” says one fund of hedge funds manager.[1]
Some examples
Vanguard STAR is a popular U.S. mutual fund that invests in other Vanguard mutual funds. Assets include U.S. and non-US stock funds, long and short-term bond funds, a GNMA fund, and a money market fund. The fund itself does not have any fee.A similar one is "Vanguard Life Strategy Moderate Growth", which invests in four other Vanguard funds, and again has no fee itself.
See also
References
Resources
- Articles on selecting and managing hedge funds and alternative investments from the investor's point of view.
- Definition and Discussion of Hedge Fund of Funds
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Collective investment schemes:
Common contractual funds • Fonds commun de placements • Investment trusts • Hedge funds • Unit trusts • Mutual funds • ICVC • SICAV • Unit Investment Trusts • Exchange-traded funds • Offshore fund • Unitised insurance fund Styles and theory: Active management • Passive management • Index fund • Efficient market hypothesis • Socially responsible investing • Net asset value Related Topics: List of asset management firms • Umbrella fund • Fund of funds • UCITS |
A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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Share may refer to:
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- Sharing (or "To Share"); to make joint use of resources (such as food or money), or to "give something away"
- Share (finance), a stock or other security such as a mutual fund
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bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity.
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security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities, such as bonds and debentures, and equity securities, e.g. common stocks. The company or other entity issuing the security is called the issuer.
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Multi-manager investment is an investment product that consists of multiple specialized funds. Each specialized fund may invest across different sectors and markets, or having managers investing in the same asset class but have different investment styles.
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A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
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A hedge fund is an investment fund structured to avoid direct regulation and taxation in major host countries and which charges a performance fee based on the increase of the value of the fund's assets.
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Private equity is a broad term which commonly refers to any type of non-public Ownership Equity securities that are not listed on a public exchange. Since they are not listed on a public exchange, any investor wishing to sell private equity securities must find a buyer in the
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Investment trusts are companies that invest in the shares of other companies for the purpose of acting as a collective investment.
Investors' money is pooled together from the sale of a fixed number of shares a trust issues when it launches.
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Investors' money is pooled together from the sale of a fixed number of shares a trust issues when it launches.
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Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.
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Diversification in finance involves spreading investments around into many types of investments, including stocks, mutual funds, bonds, and cash. Money can also be diversified into different mutual fund investment strategies, including growth funds, balanced funds, index funds,
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Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.
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A hedge fund is an investment fund structured to avoid direct regulation and taxation in major host countries and which charges a performance fee based on the increase of the value of the fund's assets.
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A hedge fund is an investment fund structured to avoid direct regulation and taxation in major host countries and which charges a performance fee based on the increase of the value of the fund's assets.
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Vanguard
Client owned
Founded Valley Forge, Pennsylvania (1975)
Headquarters Malvern, Pennsylvania, USA
Key people John J. Brennan, Chairman & CEO; John C.
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Client owned
Founded Valley Forge, Pennsylvania (1975)
Headquarters Malvern, Pennsylvania, USA
Key people John J. Brennan, Chairman & CEO; John C.
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Motto
"In God We Trust" (since 1956)
"E Pluribus Unum" ("From Many, One"; Latin, traditional)
Anthem
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"In God We Trust" (since 1956)
"E Pluribus Unum" ("From Many, One"; Latin, traditional)
Anthem
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mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
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Motto
"In God We Trust" (since 1956)
"E Pluribus Unum" ("From Many, One"; Latin, traditional)
Anthem
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"In God We Trust" (since 1956)
"E Pluribus Unum" ("From Many, One"; Latin, traditional)
Anthem
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The Government National Mortgage Association (GNMA, also known as Ginnie Mae) is a U.S. government-owned corporation within the Department of Housing and Urban Development (HUD).
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A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.
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A "manager of managers fund" (MoM fund) is an investment fund that uses an investment strategy of directly selecting different investment managers and gives them mandate to make investment decisions.
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Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.
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A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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common contractual fund (or “CCF”).
The CCF is an unincorporated body established by a management company under which the participants by contractual arrangements participate and share in the property of the fund as co-owners (specifically tenants in common).
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The CCF is an unincorporated body established by a management company under which the participants by contractual arrangements participate and share in the property of the fund as co-owners (specifically tenants in common).
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Fonds commun de placement translates to "Pooled funds", and are open-ended collective investment funds based that are neither trust of company law based. They are similar to Common contractual funds in Ireland.
Commonly referred to as FCP or F.C.P.
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Commonly referred to as FCP or F.C.P.
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Investment trusts are companies that invest in the shares of other companies for the purpose of acting as a collective investment.
Investors' money is pooled together from the sale of a fixed number of shares a trust issues when it launches.
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Investors' money is pooled together from the sale of a fixed number of shares a trust issues when it launches.
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A hedge fund is an investment fund structured to avoid direct regulation and taxation in major host countries and which charges a performance fee based on the increase of the value of the fund's assets.
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For UIT, a U.S. fund type, see .
A unit trust is a form of collective investment constituted under a trust deed.Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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