The influence of management structure on the performance of funds

A rapidly growing mutual fund category is Fund of Funds (FOFs), which invest in other mutual funds instead of individual securities. This study reports on FOFs’ characteristics and performance relative to traditional equity mutual funds and finds that FOFs compare favorably. In particular, FOFs with identified managers outperform their unidentified counterparts, and FOFs that invest in-family out perform both traditional equity funds and those FOFs investing out-of-family. Finally,replicating FOFs’ holdings can be prohibitively expensive since they commonly hold funds with high minimum initial investments, closed funds and/or funds that are restricted to a particular investor type.