Fund of Funds - pros, cons for investor

ynos

Hello!



I'm researching pros&cons of Fund of Funds. Can someone tell me what are the advantages and disadvantages, and what Fund of Funds actually are?


Thank you very much.

dunstonh

Fund of funds can offer some very good examples and some very poor. Therefore you have to be careful of generalisations.

However, I like them for smaller contributions where you cannot build a proper sector allocated portfolio. Sector allocation being the key to most successfull portfolios over the last 5, 10 and 15 years.

As an IFA, i have access to fund supermarkets that have a £1 minimum per fund so I can build portfolios with relatively small amounts. However, consumers wishing to DIY dont have that ability and most of the direct fund supermarkets have a £500 or £1000 minimum per fund. It's impossible to build a decent sector allocated fund on a £1000 minimum per fund with less than £20k. So, this is where the fund of funds can come into play. I tend to use FoFs for investments under £5k but wouldnt dream of using them above that amount if I was doing it (or above 20k if it was DIY).

ynos

Is "fund of funds" same thing like "umbrella fund"?


Thank you for your fast previous answer.

ynos

What about double diverisification? Is it really that effective? Or it's just in theory, because benefits of diversifcation are smaller and smaller, every time you diversify something... Isn't one standalone fund already diversified enough?

Ok, there can be also greater infuence if manager of standalone fund is not
skilled. In fund of funds you have many more managers, but smaler personal management options. - for beginners good option.


Am I right in any points mentioned?