FOF: funds in funds

This course is reproduced from Morningstar and has been partially revised by Futu.

What is "fund of the fund" (Funds of Funds)? This is a fund that invests in funds.

General funds invest in stocks, bonds and other investment instruments, while "fund of funds" invests in general funds, which are suitable for investors who are new to the securities market and have less investment experience. or investors who are busy and don't have time to manage their portfolios.

The fund of the fund also has a disadvantage, that is, the two-tier fee structure.

From the perspective of sales expenses, most of the "fund of funds" in the United States are commission-free funds, and 197 of the 296 "fund funds" are commission-free. Even for commission-free funds, most of them charge management fees, with an average management fee level of 0.31%.

On the face of it, the management fee level of "fund of fund" is lower than that of general fund, but there is a two-tier fee structure, that is, investors not only need to pay the management fee of "fund of fund". It is also necessary to pay the management fee charged by the fund invested by the fund of the fund.

For example, T. Rowe Price Retirement 2020, although the proportion of direct costs is zero, the proportion of indirect costs generated by the funds it invests is as high as 0.8 per cent.