BFOF Best Fund of Funds
Acronym Definition
BFOF Best Fact of Filing
BFOF Best Fact or Fiction
BFOF Best Faith on Fire (Camporee)
BFOF Best Fear Of Failure
BFOF Best Feet Of Flames (show)
BFOF Best Field Of Fire
BFOF Best File of Files (term used with CVS source control difference
comparison)
BFOF Best Finance Office of the Future
BFOF Best Finding of Fact
BFOF Best Fix On Failure
BFOF Best Fixed Operating Frequency
BFOF Best Flights of Fantasy
BFOF Best Flow of Funds
BFOF Best Focus on the Family (religious organization)
BFOF Best Follow On Forces
BFOF Best Force-On-Force
BFOF Best Forum of Firms (accounting)
BFOF Best Friend or Foe
BFOF Best Friend or Foe (game show)
BFOF Best Fuel Oil Flow
BFOF Best Full on Filters
BFOF Best Fund of Funds
A "fund of funds" (FoF) is an investment fund that uses an investment
strategy of holding a portfolio of other investment funds rather than investing
directly in shares, bonds or other securities. This type of investing is often
referred to as multi-manager investment.
There are different types of 'fund of funds', each investing in a different type
of collective investment scheme (typically one type per FoF), eg. 'mutual fund'
FoF, hedge fund FoF, private equity FoF or investment trust FoF.
Fettered or unfettered
Some investment managers offering retail FoF may limit the fund selection to
only include the range of funds they manage; this type of arrangement is called
a fettered fund of funds. Most FoF offerings include funds from various
investment managers and are called unfettered fund of funds.
Advantages
Investing in a collective investment scheme will increase diversity compared to
a small investor holding a range of securities directly. Investing in a fund of
funds arrangement will achieve even greater diversification.
An investment manager may actively manage your investment with a view to
selecting the best securities. A FoF manager will select the best performing
funds to invest in based upon the managers performance. This additional level of
selection can provide greater stability and take on some of the risk relating to
the decisions of a single manager.
Disadvantages
Management fees for funds of funds are typically higher than those on
traditional investment funds because they include part of the management fees
charged by the underlying funds.
Since a fund of funds buys many different funds which themselves invest in many
different securities, it is possible for the fund of funds to own the same stock
through several different funds and it can be difficult to keep track of the
overall holdings.
Funds of funds are often used when investing in hedge funds, as they typically
have a high minimum investment level compared to traditional investment funds
which precludes many from investing directly. In addition hedge fund investing
is more complicated and higher risk than traditional collective investments;
this lack of accessibility favours a FoF with a professional manager and built
in spread of risk.
Pension funds and other institutions often invest in funds of hedge funds for
part or all of their "alternative asset" programs, i.e. investments other than
traditional stock and bond holdings.
Criticisms of fund of hedge funds
While funds of funds conceptually can provide extremely useful services for many
hedge fund investors, they have been criticised for the significant incremental
costs they impose. (The underlying hedge funds usually charge fees of between 1
and 2% of assets managed and incentive fees of 15-25% of profits generated. The
funds of funds typically add additional fees of 1% and 10%, respectively).
Moreover, fund-of-funds behavior has often exhibited crowd-following tendencies,
suggesting the managers of these funds prefer to match indices rather than seek
opportunities.
The industry has recently been criticized by some hedge fund managers for a
reputation of holding a short-term view. Some hedge funds have even started
turning away fund of hedge funds money. “It is really beginning to irritate
those funds of hedge funds that approach their investments sensibly,” says one
fund of hedge funds manager.
Some examples
Vanguard STAR is a popular U.S. mutual fund that invests in other Vanguard
mutual funds. Assets include U.S. and non-US stock funds, long and short-term
bond funds, a GNMA fund, and a money market fund. The fund itself does not have
any fee.
A similar one is "Vanguard Life Strategy Moderate Growth", which invests in four
other Vanguard funds, and again has no fee itself.
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