Definition
The term fund of funds refers to a portfolio of mutual funds held by a single mutual fund. The objective of a fund of funds is to provide investors with diversification within a specific asset allocation framework.
Explanation
Also known as a multi-manager investment, a fund of funds (FOF) attempts to offer individuals diversification through the purchase of mutual funds. These funds can provide investors with an allocation of assets that aligns with their objective. For example, a fund of fund's investment objective could be capital appreciation.
Generally, these investments fall into one of two broad categories:
Fettered FOF: includes funds that are managed by the same investment company.
Unfettered FOF: includes funds that are run by managers of different investment companies.
Fund of funds typically charge fees that are high relative to other types of mutual funds. This is due to the fact the investor is not only paying fees to the FOF's management team, but also the fees associated with the underlying funds. In fact, this double fee structure was not always revealed in the FOF's prospectus. In January 2007, the Securities and Exchange Commission (SEC) began requiring fund of funds to disclose these fees under the heading Acquired Fund Fees and Expenses (AFFE).
Related Terms
The term active fund refers to an investment strategy that relies on forecasts, research, and proprietary models when selecting securities to buy or sell. The objective of active funds is to find securities that are currently undervalued and will outperform the market in the near term.
Moneyzine EditorNovember 6th, 2024
The term asset allocation fund refers to a portfolio of equities, bonds, and cash equivalents in a proportion that fulfills a specific investment objective. The allocation of assets in these funds can remain fixed or they may vary over time to fulfill its objective.Moneyzine EditorNovember 6th, 2024- The term passive fund refers to a portfolio of securities that are thought to mirror a market index such as the S&P 500. The objective of passive funds is to find securities that will provide investors with a return equal to the index that the fund's managers are attempting to replicate.Moneyzine EditorNovember 6th, 2024
The term go-go fund refers to a portfolio of high-risk securities that attempts to provide investors with above average returns. While the stated objective of a go-go mutual fund is to provide individuals with higher than average returns, there is considerable risk associated with these investments too.Moneyzine EditorNovember 6th, 2024
