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Fund of funds is the term used to describe a single fund that is made up of a number of other funds available on the open market. The fund of funds manager decides which funds he wishes to invest in and makes the day to day decisions regarding whether to hold an investment in a given fund, increase the holding or to sell it and move the money elsewhere if he feels the fund is underperforming. Funds of funds can be either fettered or unfettered. A fettered fund of funds is one that can only invest in the funds of one company; for example if XYZ Plc offers only fettered funds of funds, it would mean that its funds invest in only XYZ Plc funds. An unfettered fund of funds is much more flexible and can invest in any one of the thousands of funds available. A fund of funds may be invested in dozens of different funds with an overall fund manager making the decision regarding which funds to invest in and when. Each of these individual funds will have its own management teams, investment styles and research material so by investing in an unfettered fund of funds your money will be invested into potentially dozens of different funds thus reducing risk.
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