what is Fund of Funds

**Fund of Funds (FOF) Overview and Analysis**

1. **Definition and Structure**:
- A Fund of Funds (FOF) is an investment vehicle that pools money to invest in other funds, providing diversification and risk management for investors. It is a type of multi-manager investment where a single fund invests in multiple underlying funds.
- FOFs can be either fettered or unfettered. Fettered funds can only invest in individual funds of the same management company, creating packaged deals for their in-house funds. Unfettered funds can invest in different funds from any investment company but often come with higher fees.
2. **Advantages**:
- FOFs offer diversification as they invest in multiple underlying funds, which can help reduce volatility and risk compared to directly investing in securities.
- They provide professional wealth management services and expertise, which can be attractive to small investors who may not have the knowledge or resources to manage their investments directly.
3. **Disadvantages**:
- FOFs typically have higher fees compared to traditional investment funds due to the compounding of fees on top of fees. This can result in lower returns for investors after fees are deducted.
- The returns of FOFs may be lessened by investment fees, which can be a significant drawback, especially when compared to the potential returns of single-manager funds.
4. **Regulation and Oversight**:
- FOFs are regulated by the SEC, just like other investment funds, and are required to disclose their fees and expenses in the prospectus.
- The SEC's requirement for disclosure of Acquired Fund Fees and Expenses (AFFE) helps investors understand the total cost of investing in FOFs.
5. **Investment Strategy and Types**:
- FOFs can be part of broader investment strategies, such as target date funds for retirement plans, which shift their investment mix over time.
- They can also be asset-allocation funds, which own other funds within the same asset class, such as ETFs of ETFs or mutual funds of mutual funds.

In conclusion, while FOFs offer diversification and professional management, they also come with higher fees and potential lower returns compared to single-manager funds. Investors should consider their risk tolerance, investment goals, and the fees associated with FOFs when making investment decisions.