Do funds of funds make sense?
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Kristof Agache is Head of Fund Research at Deutsche Bank in Brussels, where he is responsible for the team that selects third-party funds and manages the funds of funds. Prior to this, he was fund manager of balanced funds at Fortis Investments. He also teaches at Vlekho Business School in Brussels. He graduated from the University of Ghent with a First Class Honours degree in Economics and also holds a Certified Financial Analyst (CeFA) degree from the European Federation of Financial Analysts’ Societies (EFFAS). He is also a regular speaker at conferences on investment issues.
Knut Huys is fund manager at Deutsche Bank where he manages the funds of funds as well as the pension fund of Deutsche Bank Belgium. He began his career as investment adviser at Deutsche Bank and holds a Master’s degree in Finance from the University of Antwerp. He participated at several exchange programmes in Italy (Erasmus) and India (MBA project) and is a CFA charterholder. *Deutsche Bank, Marnixlaan 13, B-1000 Brussels, Belgium Tel: 00 32 2 551 61 31; e-mail: [email protected]; [email protected]
Abstract A popular discussion in the investment industry is whether funds of funds make sense, but there is little recent research available. A survey was set up to compare the net of fees performance of funds of funds and their single fund counterparts over a period of five years. The comparison was made within the international equity asset class, based on a fund database that is representative of the European market. Based on that research, it is obvious that funds of funds do not generally underperform their single fund counterparts. They even performed significantly better over the last three years, which indicates that funds of funds really make sense. Keywords: funds of funds, open architecture, fund selection, mutual funds, total expense ratio, diversification
Introduction Open architecture is a hot issue in the investment industry. Many distributors have opened up their channels to offer third-party products to their clients. Distributors can add value through impartially recommending the better mutual funds out of the large number of available mutual funds. To do this, they will have to perform a fund (manager) selection based on a well-structured methodology. This is also the case for plan sponsors, consultants and funds of funds managers. One single asset manager is not
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Journal of Asset Management
likely to generate outstanding performance over all asset classes. By combining the better fund managers per asset class into one portfolio, fund manager selection should create added value to result in superior overall performance. Eventually, a fund (manager) selection through a fund of funds should be able to outperform its single fund counterpart. To gain more insight into whether funds of funds make sense, one should consider a sample of funds of funds and a sample of their single fund counterparts to compare their performances. This paper
Vol. 6, 5, 322–328
䉷 Palgrave Macmillan Ltd 1479-179X/06 $30.00
Do funds of fun
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