Fund of Funds (FOF) Explained: How Does it Work?
What Is a Fund of Funds (FOF)?
A fund of funds (FOF) is one that, instead of investing in a pool of securities like stocks and bonds, buys shares in other funds. These “multi-manager” investments offer investors further diversification and access to the expertise of other skilled fund managers.
The fund-of-funds approach has grown in recent years, particularly among institutional investors like pension funds and endowments seeking to spread risk and maximize returns. While open-end funds as a whole have grown 42% in assets worldwide from the first quarter of 2020 to the end of 2023, FOFs have grown 58%.
However, FOFs are “infamous,” as a Financial Times analysis put it, for their extra layers of fees. You pay not only for…
