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Fund of Funds (FoF): The Basics

A fund that invests in other funds instead of individual stocks or bonds — here is how that structure differs from a regular fund.

What is a fund of funds (FoF)?

A fund of funds is a fund that, instead of investing directly in individual stocks or bonds, invests in other funds and captures their performance indirectly.

The layered-fee structure

A fund of funds charges its own management fee on top of the fees already charged by the underlying funds it invests in, which can push total costs higher than a single, direct fund.

Diversification benefit

Investing across multiple fund managers and multiple strategies at once can spread out the risk of being concentrated in any single fund or manager.

A common example: target-date funds

Many target-date funds (TDFs), which automatically shift their asset allocation as a target retirement date approaches, are structured as funds of funds that allocate across several underlying funds.

A route to funds that are hard to access directly

A fund of funds domiciled in an investor's home market can also serve as an indirect way to invest in funds based abroad that would otherwise be difficult for an individual to buy directly.

What to check before investing

It's worth reviewing the prospectus for the actual list of underlying funds and their weightings, the total expense ratio (TER), and whether the underlying funds overlap enough to create unintended concentration in the same assets.

A structure you may already own: target-date funds

If you've ever invested in a target-date fund, you've likely already experienced a fund-of-funds structure without necessarily realizing it — a TDF typically spreads your contributions across a mix of underlying equity, bond, and other funds, and gradually shifts that mix to be more conservative as the target date approaches.

Educational content, not investment advice

This page introduces the general concept of a fund of funds and isn't a recommendation for any specific product. The underlying funds and cost structure vary by product, so review the prospectus for the specific fund before investing.

Frequently Asked Questions

Is a fund of funds always more expensive?

Structurally, there is room for two layers of fees, but actual total costs vary a lot by product — some funds negotiate discounted fees on the underlying funds they hold. Checking the actual total expense ratio in the prospectus is the accurate way to know.

What kind of investor is a fund of funds suited for?

It's often suggested for investors who want diversified exposure across several fund managers and strategies at once, or who want indirect access to funds based abroad that would be difficult to buy directly on their own.