![]() ![]() In both cases, the same funds are used as the asset-allocation funds. iShares has target-date ETFs that own other iShares ETFs Vanguard has target-date mutual funds that own other Vanguard mutual funds. Asset allocation Ī target-date fund is similar to an asset-allocation fund, except that the allocation is designed to change over time. Nonetheless, fund-for-funds remain important in particular asset classes, including venture capital and for particular investors in order for them to be able to diversify their too low or too high level of assets under management appropriately. These strategic and structural issues have caused fund-of-funds to become less and less popular. 20 saw FOFs take a battering from investors and the media on all fronts from the hollow promises made by over-eager marketers to the strength (or lack) of their due diligence processes to those carefully explained and eminently justifiable extra layers of fees, all reaching their zenith with the Bernie Madoff fiasco. ![]() The due diligence of the FOFs apparently did not include asking why Madoff was not making this charge for his services. It became clear that a motivation for this was the lack of fees by Madoff, which gave the illusion that the FOF was performing well. The due diligence and safety of investing in FOFs has come under question as a result of the Bernie Madoff investment scandal, where many FOFs put substantial investments into the scheme. Pension funds, endowments 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. However, some FOFs waive the second level of fees (the FOF fee) so that investors only pay the expenses of the underlying mutual funds. As of January 2007, the SEC began requiring that these fees be disclosed in a line called ' Acquired Fund Fees and Expenses' (AFFE)." Īfter allocation of the levels of fees payable and taxation, returns on FOF investments will generally be lower than what single-manager funds can yield. In its article on Funds of Funds, Investopedia notes that, "Historically, a fund of funds showed an expense figure that didn't always include the fees of the underlying funds. ![]() Management fees for FOFs are typically higher than those on traditional investment funds because they include the management fees charged by the underlying funds. However, this is countered by the increased fees paid both at FOF level and at the level of the underlying investment fund. According to modern portfolio theory, the benefit of diversification can be the reduction of volatility while maintaining average returns. Investing in a fund of funds may achieve greater diversification. Investing in a collective investment scheme may increase diversity compared with a small investor holding a smaller range of securities directly. ![]() It went bankrupt after being looted by Robert Vesco. The original Fund of Funds was created by Bernie Cornfeld in 1962. There are different types of FOF, each investing in a different type of collective investment scheme (typically one type per FOF), for example a mutual fund FOF, a hedge fund FOF, a private-equity FOF, or an investment trust FOF. A fund of funds may be "fettered", meaning that it invests only in funds managed by the same investment company, or "unfettered", meaning that it can invest in external funds run by other managers. This type of investing is often referred to as multi-manager investment. JSTOR ( June 2008) ( Learn how and when to remove this template message)Ī "fund of funds" ( FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities.Unsourced material may be challenged and removed. Please help improve this article by adding citations to reliable sources. This article needs additional citations for verification. ![]()
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