Why invest in Funds of Funds? We explain it to you!
Funds of Funds (FoF) are a great option for anyone looking to access the best fund managers on the market in a simple, organized and unified way , especially those who don’t have much time to take care of their investments.
This happens because the fund is managed by a qualified professional who will always be looking for the best assets.
Furthermore, this type of fund allows you to invest in a diversified portfolio of assets without needing a lot of capital to do so.
Do you want to know a little more about what funds of funds are and how they work ? So follow this article!
What are Funds of Funds?
Funds of Funds are funds that invest in shares of other funds . The objective is to invest in the best funds of certain strategies and deliver to shareholders a product with an excellent risk x return ratio. The objective is to give investors the possibility of investing in different assets with a single fund.
In this sense, FOFs can be an advantageous strategy from the point of view of risk and asset return , as they are investments that invest shareholders’ resources in a diversified asset portfolio with several other investment funds.
It is worth noting that, in general, FOFs include the expression FIC or FICFI (Investment Fund in Investment Fund Quotas). This means that in this case the fund is almost entirely made up of shares in other funds.
Are you interested in investing in Funds of Funds ? So check out some of the main benefits of FOFs below.
Advantages of funds of funds
Despite representing an interesting investment option for beginner investors, many still do not know what the benefits of
Funds of Funds . Among the main advantages are:
1. Diversification
FoF portfolios are made up of funds managed by managers with complementary styles and characteristics, who together are capable of delivering a superior return given a level of risk .
Furthermore, when investing in a fund of funds, you have indirect access to several other investment funds. This is important for those investors who are more resistant to risk, as investment diversification helps to overcome portfolio risks .
2. Simplicity
Funds of Funds are also recommended for those who do not have much capital to contribute to their investment portfolio . With values starting at R$100.00, it is possible to buy a share in a Real Estate Investment Fund , for example.
3. Tax Efficiency
Movements, such as investments and redemptions within FoFs, are not taxed . Taxation only exists when the shareholder of the Funds of Funds redeems in share-equity events.
It is worth noting that the quota allowance is not applied to all types of funds of funds. Share FOFs, for example, are taxed only upon redemption of the asset and only on the profitability obtained. Funds of Funds invest in shares of investment portfolios, which generates many benefits.
4. Professional management
First of all, it is worth remembering that the fund manager is the qualified professional who manages investment funds . In this sense, he must have great knowledge of different types of financial assets and fund regulations.
The FoFs management team monitors the performance and positioning of all managers on a daily basis and is capable of choosing the best funds and building uncorrelated and optimal portfolios from a risk perspective.
This advantage is relevant for beginner investors who have little knowledge to manage their portfolio, as well as for investors who cannot take the time to define the most appropriate investment strategy.
5. Exposure to exclusive funds
Many FoFs are shareholders of renowned funds with an excellent track record that are currently closed for funding. Thus, by purchasing a share in the Funds of Funds, the investor can have access, even indirectly, to funds that are exclusive to qualified or professional investors.
How do Funds of Funds work?
Funds of Funds work in a similar way to other funds, however the difference is that, instead of buying assets such as shares or public bonds, they buy shares in funds managed by other managers who pool their resources with the aim of investing in the financial market .
Resource management is carried out by professionals who invest the third-party resources entrusted to them, seeking to obtain the desired return for the shareholders’ capital.
Therefore, by choosing a fund that has good management, the investor increases his chances of obtaining a consistent return over time. But it is worth mentioning that past performance is not a guarantee that this will occur with future results .
Another important point about FOFs is that they must have regulations that govern the relationships between shareholders and administrators, as well as their rights and obligations. Furthermore, changes to the regulations must be approved at a shareholder meeting.
Funds of Funds can also receive contributions from individuals, legal entities and other funds, and if they are open, there is no limit to the number of participants.
What are Funds of Funds?
There are many types of Funds of Funds, from equities to fixed income.
As with other types of investment, Funds of Funds can be divided into several classifications . Check out how each of them works below:
Macro Funds of Funds
Macro Funds of Funds are those that buy shares in Macro funds which, in turn, have positions in the Interest, Currency, Commodities and Stock Exchange markets.
Credit Fund Funds
Credit Funds of Funds purchase shares of Private Credit funds that have private credit assets, both corporate and banking.
Funds of Equity Funds
Equity Funds of Funds are formed primarily by funds that purchase shares of equity funds that have shares of companies in their portfolios.
How to invest in Funds of Funds?
Now that you understand what Funds of Funds are and how they work, it’s time to find out how to invest in FOFs .
In practice, to acquire a share of Funds of Funds you need, first of all, to open an account with a stockbroker . It is this that will serve as an intermediary between you and the desired Funds of Funds.