Funds of funds

One of the recent investment trends is for fund management houses to offer “multi-manager” funds, where one investment fund re-invests into a range of other managers’ funds or uses a team of managers from other investment houses. The rationale is to have a “best of breed” concept – a management of all the talents.

To date, the performance of these funds has been questionable (some 200 have been launched so far). There are two main reasons for this. First, funds-of-funds are so well diversified that they tend towards producing very average returns. Secondly, they are expensive – total expense ratios (TER) are around 2.7% pa compared with 1.6% pa for a single fund. Source Financial Times 6/10/07.