Fund of funds
As a fund of funds ( english fund of funds ) are investment funds referred that the money in turn create shareholder in shares of mutual funds. The funds in which the fund of funds invests are called target funds. Mutual funds, both in individual securities such as shares or bonds and invest in mutual funds are sometimes called super funds as opposed to funds of funds. There are also specialized funds of funds that focus on a specific asset class or topic. These include a. Hedge fund . These invest in individual hedge funds .
Fund of funds approved in Germany are generally open to all investment funds also approved in Germany that are not themselves funds of funds (avoidance of cascade effects ), special funds or closed funds. A single target fund may not exceed 20% of the total assets of the fund of funds. In addition, a fund of funds may not hold more than 10% of the shares in the assets of the target fund. These restrictions are also to be understood as lessons from the collapse of the first fund of funds (FOF), which was set up in 1962 by Investors Overseas Services (IOS). In the 1970s, the FOF went bankrupt due to obfuscation, embezzlement and a kind of pyramid scheme. After these events, funds of funds were banned in Germany and only reorganized in the 3rd Financial Market Promotion Act of April 1, 1998.
As a fund of funds and special funds are referred to only invest or to a certain higher proportion in the countries Germany, Austria and Switzerland. For the abbreviations of the country names D erm, A ustria and C onfoederatio H Elvetica the short word that describes this fund yields.
chances and risks
Thanks to the fund of funds structure, the fund manager of the fund of funds can assign the most attractive funds to the individual market segments to be covered. In this way, practically any risk / return profile can be displayed. The advantage for the investor lies in a broadly diversified and actively managed portfolio. It is not only possible to diversify via individual securities, but also via various fund managers and fund companies. For this diversification aspect , on the one hand, the independence of the fund of funds management is important, so that it is ensured that funds from a particular company are not increasingly taken into account. On the other hand, diversification also places a requirement on the risk management of the allocation so that there are no strong overlaps that run counter to diversification or even result in cluster risks.
The fund of funds manager can thereby also draw on funds that go far beyond the usual range of open mutual funds , such as those offered by banks or fund platforms, transcend. If the fund of funds also holds shares in funds that have now been closed to new investors (e.g. due to a volume that has been reached), the investor also has the opportunity to participate in attractive investment ideas via the fund of funds assets that would not be open to him as a private investor . The fund of funds must be differentiated from a master fund , in which an institutional investor has various specialized asset manager sub-portfolios of a fund managed.
Costs and benefits
Funds of funds have a reputation for being particularly expensive forms of management. It is undisputed that, as described above, there is an additional management level of the fund of funds manager in addition to the management of the target funds, which is associated with costs. On the other hand, this additional management level has different framework conditions than an asset manager or a private investor who actively manages his / her custody account with public funds himself. The fund of funds makes its purchases and sales with the investment company of the target fund in which the investment is to be made, usually at the net asset value , i.e. without the premium that is customary in retail customer sales . Some fund companies also emphasize that the acquisition of so-called "institutional shares" must be calculated with discounted management fees, or that maintenance commissions distributed by the target funds are credited to the fund of funds in order to achieve a lean cost structure. Some fund of funds managements also work with performance-based fee models, a so-called performance fee. Nevertheless, it is not obvious that an additional management level has to be funded with funds of funds, this happens in the form of fees, which inevitably reduce the net return of the investors.
Due to the fund management fees incurred by the target fund managers, the majority of funds of funds cannot be compared with, or even compete with, individual funds in terms of cost. It should be noted, however, that such a comparison would not take place on the same level - the fund of funds diversifies, as shown above, across funds and fund managers, while the individual funds cannot have this breadth. Beyond the fund of funds, some fund asset management companies act in a similar way to a fund of funds structure. Compared to such a comparable fund asset management, however, there will usually not only be cost advantages, but above all transparency advantages. According to scientific knowledge, the net benefit of an actively managed fund has generally not been proven. It is much cheaper to diversify across index funds and ETFs . That is why the FAZ comes to the assessment in an article: "Funds of funds are usually not worthwhile."
"Renaissance" of the fund of funds since 2007 in view of tax changes
The changes in the tax treatment of investment income that occurred with the introduction of the final withholding tax from 2009 have in many cases led to new funds of funds or fund asset management being transferred to funds of funds.
The background to this is that on the sale of securities that were acquired by December 31, 2008 and held for at least one year, price gains are not taxed. Price gains that are achieved within an investment fund are not subject to taxation at the level of a private investor who is taxable in Germany. Ordinary income such as interest and dividends are, as before, also taxable for investment funds at the time they are received, as they are attributed to the investor from this point in time.
In principle, there is no tax advantage for a fund of funds compared to an investment fund that invests in individual values. Compared to fund asset management, however, the fund of funds structure offers the option of continuing to receive tax-free capital gains that arise from active management in relation to the target funds. This is not possible when investing in individual funds: Here, taxation takes place every time a participation in a target fund is reduced or completely dissolved, since at this point price gains are realized at the level of the investor and are then taxed. In return, the investor has the opportunity to influence the structure of his portfolio.
For investments after 2008, too, price gains within an investment fund are not taxable at investor level during the holding period of the fund. Only when the fund units are sold does the investor receive an overall taxable income from price gains. This can result in “ compound interest effects ” when reinvesting the otherwise taxable part of the retained earnings.
Individual evidence
- ↑ a b Volker Looman: Fund of funds are usually not worthwhile. In: FAZ . April 6, 2008, accessed February 5, 2018 .