Fund of funds
A managed fund that invests primarily in other managed funds rather than directly in shares, bonds or other assets. Common in diversified-multi-asset products.
A "fund of funds" is a managed fund that holds units in other managed funds rather than directly holding the underlying securities. Diversified-multi-asset managed funds in NZ are commonly structured as funds of funds — for example, a "Growth" fund-of-funds may hold underlying NZ-equity, international-equity, NZ-fixed-interest and international-fixed-interest sub-funds in a target asset-allocation mix.
Fund-of-funds structures simplify fund-manager operations and let the same underlying sub-funds power multiple risk-profile products. The trade-off: a fund-of-funds can have a "double layer" of fees (the fund-of-funds level and the underlying-fund level). NZ disclosure rules require the *total* annual fund charge to include all underlying layers, so the headline number is comparable — but the fee transparency is sometimes harder to inspect.
When inspecting a fund of funds, read the SIPO for the sub-fund list, and check the OMI for the inter-fund fee mechanics.
Related terms
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SIPO
Statement of Investment Policy and Objectives (SIPO)
The fund-manager document setting out the fund's investment objectives, strategy, asset allocation ranges, and investment-policy constraints (including any responsible-investment screens).
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OMI
Other Material Information (OMI)
A supplementary FMA-required disclosure document containing material information about a fund or scheme that is not included in the PDS.
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AFC · Total fund charge · MER
Annual fund charge
The total ongoing percentage charge paid out of a NZ managed fund each year — covering management fees, supervisor/custodian fees, audit, and other operating costs.