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Fund of Funds

A Fund of Funds (FoF) is an investment strategy that involves investing in a portfolio of other investment funds rather than directly in individual securities. This structure allows investors to achieve diversification across multiple asset classes, fund managers, and investment strategies through a single fund. Fund of Funds can include mutual funds, hedge funds, private equity funds, or ETFs. While they offer diversified exposure, FoFs often have higher fees due to the layered fee structure of the underlying funds.

Example

An investor buys shares in a Fund of Funds that invests in various mutual funds, hedge funds, and ETFs, gaining broad exposure to different asset classes and investment strategies.

Key points

• Invests in a portfolio of other funds rather than individual securities.

• Provides diversified exposure across various asset classes and strategies.

• Often has higher fees due to multiple layers of management costs.

Quick Answers to Curious Questions

FoFs provide access to a broad range of investment strategies and asset classes, offering diversification and professional management through a single investment.

Risks include higher fees, potential overlap in underlying holdings, and reduced control over individual investments, which can impact overall returns.

FoFs can enhance diversification by spreading risk across various funds, making them a suitable option for investors seeking broad exposure with professional oversight.