| Funds of funds have edge over direct fund management |
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| 06/11/2005 | |
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Both in bullish and bearish markets, funds of funds tend to perform better than directly managed funds. According to research by investment consultant Fund-Market, global equity funds of funds have yielded higher and less volatile returns than underlying funds over a three-year period characterised by buoyant markets (2002-2005). Fund-Market's previous research had pointed to similar results in primarily bearish markets (2001-2004). "Both studies point to relatively stable results in two different market settings. Funds of funds can generate value if they are used appropriately", says Thierry Feltgen, senior fund analyst at Fund-Market. The analysis of regression curves, which allows to determine at which point funds of funds start underperforming directly managed funds, show that up to 18% growth, funds of funds perform better than underlying funds. "As long as growth is not excessive, funds of funds look like a better investment vehicle. Beyond that point, an investment in a fund of funds can still be worthwhile, but is riskier", states Henri Reiter, Fund-Market's managing director. So far in 2005's upward markets, the average performance of global equity funds of funds has been 23.5%, against 21.07% for underlying funds. Over three years, the average performance of funds of funds stands at 40.89%, against 37.3% for underlying funds. Those results include management fees, usually higher for funds of funds due to the multimanager factor. Risk indicators also favour funds of funds, which are 10.7% less volatile than directly managed funds. The average maximum drawdown of funds of funds is -15.88%, compared to -17.78% for underlying funds. |
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Articles of the same Topic : Portfolio management |
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