"Do Funds-of-Funds Deserve Their Fees-on-Fees? "
The answer, of course, is yes.
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Interesting. But why? Is this saying that the hedge fund benchmark includes out-performers that are not practically available to most investors, so the benchmark for comparison should be lowered to exclude these funds? And that since fund of funds include these out-performers, this excess return compensates for the additional layer of fees?
Or something else entirely?
Found an ungated version here: http://www2.gsb.columbia.edu/faculty/aang/papers/FoF.pdf. Haven’t had the time to read it yet, though.
The only “fund of funds” that I’m aware of are those “life stage” funds that many mutual fund companies are foisting on their customers. Usually made up of their less popular and/or less performing funds, they have the dubious distinction of fees on the underlying funds as well as fees on the fund of funds.
I don’t have, nor am I likely to ever have the $5,000,000 in assets needed to be a “qualified investor” (nor an “accredited investor”) who could participate in hedge funds.
Tangurena:
1. In the paper, they seem to be talking about hedge “fund of funds”, not the lifestage stuff.
2. There are vendors who don’t charge fee on the lifestage FOF, just the fee on the underlying funds. Vanguard is one. The Vanguard underlying funds are also low expense index funds — a good index fund is NOT a loser fund. I don’t work for Vanguard; I’m just a satisfied customer. I think TRPrice target funds work similarly.
3. Really, if you just want to focus on the “savings” aspect and don’t want to spend a lot of time learning to manage the “buy and sell” aspect, low-expense index funds are the way to go. You won’t look brilliant, but you won’t look stupid either.
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