What Are Funds of Funds?

Core Viewpoint - Funds of funds (FoFs) offer broader diversification compared to single mutual funds or ETFs but come with higher fees and potential risks [2][4]. Potential Benefits of Funds of Funds - Greater diversification than investing in a single mutual fund or ETF, as FoFs typically invest across various asset types, strategies, and regions, potentially lowering portfolio volatility [4]. - Can be geared toward specific goals, such as retirement or education savings, with automatic rebalancing to reduce risk as the target date approaches [4]. - Access to specialized investment opportunities, including professional management and exposure to private funds that may not be available to retail investors [4]. Risks of Funds of Funds - Higher expenses due to multiple layers of fees from both the FoF and underlying funds, which can impact overall returns [4]. - Less transparency regarding portfolio composition and underlying risks, potentially leading to concentration or over-diversification risks [4]. - Limited direct control over investments, as investors cannot choose specific securities and must rely on the decisions made by FoF managers and underlying fund managers [4].