A fund of funds is an investment strategy whereby the fund invests in other funds rather than investing directly in the underlying assets such as shares and bonds. Fund of fund managers generally aim to select the best performing funds based upon the managers past performance and various other factors such as the fund selection criteria.
The benefits of investing in fund of funds:
- Investing in fund of funds may increase diversification compared to investing in a range of securities directly
- Benefit from the experience and expertise of the best performing fund managers
- Gain access to investments that are normally reserved for institutions and ultra high net worth investors
The risks of investing in fund of funds:
- Fund of Funds are subject to normal market fluctuations and other risks inherent in investing in securities
- The value of investments and the income derived from them may fall as well as rise and investors may not get back the original amount they invest
- There is no certainty that the investment objective of a fund will actually be achieved and no warranty or representation is given to this effect
