Fund Of Funds
Well…first, there’s a fund. It has, say 100 stocks in it. Index fund. Mutual fund. Exchange-Traded Fund. But then there’s a fund…of funds. Not just a fund of stocks, but a fund of funds. Like...if there was a fund of funds that comprised 10 funds, and each fund had 100 stocks in it...then that fund of funds would be representing the performance of 1,000 stocks.
Notionally, a fund of funds appeals to investors because they can grow very large, and then directly negotiate with money managers to give what is essentially a wholesale discount to shareholders.
Say a fund of funds comes to a hedge fund that normally charges a 2 percent management fee and then takes 20% of profits. If that fund is investing a big chunk, say, 50 million bucks in that fund, maybe they can negotiate for 1.5% management fee and just 15% carry.
Not always doable, but that's the tacit promise of the fund of funds people, who knock on the doors of the wealthy asking for one percent a year for themselves for their own management fees...on top of what the hedge, mutual, and other funds want to charge.
Theoretically, there could also be a fund of fund of funds…but, uh...that’s a little too Inception for us.
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Finance: What is a Diversified Mutual Fu...20 Views
finance a la shmoop what is a diversified mutual fund? all right people
listen up it's lots of investments stocks bonds exposure to risk and reward [Risk and reward punch man in face]
everywhere energy, telecom, insurance, real estate, banking, chemicals, tech, retail not
enough diversity yet well those are just sectors or industries and there's a
whole bunch of them what about geography geographic diversity the US, Russia, China
Europe someday maybe Mars Elon what do you think well maybe exposures to [Elon Musk floating in space]
different currencies or commodities cycles as the diversity you seek hmm
well that's diversity Benetton eat your heart out so the bigger question is why
would you want such diversity? well the idea is that you mitigate risk by being
diverse the don't put all your eggs in one basket thing if one investment goes [Value of investment graph appears]
bust well at least you have plans B C and D to fall back on and if this is
grabbing you check out our videos on efficient markets theory for more on the
subject or maybe diversify your knowledge and watch all of our finance
videos food for thought and you know please click on the ads that we got to [Man holding begging sign]
eat around here
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