Critical Finance Review > Vol 7 > Issue 2

Fund of Funds Selection of Mutual Funds

Edwin J. Elton, Stern School of Business, New York University, USA, eelton@stern.nyu.edu , Martin J. Gruber, Stern School of Business, New York University, USA, mgruber@stern.nyu.edu , Andre de Souza, Peter J. Tobin College of Business, St. John's University,, USA, desouzaab@stjohns.edu
 
Suggested Citation
Edwin J. Elton, Martin J. Gruber and Andre de Souza (2018), "Fund of Funds Selection of Mutual Funds", Critical Finance Review: Vol. 7: No. 2, pp 241-272. http://dx.doi.org/10.1561/104.00000056

Publication Date: 31 Dec 2018
© 2018 E. J. Elton, M. J. Gruber and A. de Souza
 
Subjects
 
Keywords
G11G29G34
Fund of FundsPerformanceConflict of interest
 

Share

Download article
In this article:
1. Introduction 
2. Literature Review 
3. Sample 
4. Internal and External Holdings 
5. How Well Do Funds of Funds Do in Selecting Passive Funds 
6. How Well Do FOFs Perform in Selective Active Funds? 
7. Shareholder Objectives, Family Objectives or Management Objectives 
Conclusion 
Appendix: Indexes Used for Computing Alpha on Individual Mutual Funds 
References 

Abstract

Managers of Fund of Funds have access to information not available to the general public in evaluating funds from their own family. However, they may have family or self-serving motives that can hurt shareholder performance. By examining a history of individual transactions of funds of funds, we show that managers of Fund of Funds despite access to non-public information select individual funds that underperform random selection. Much of this underperformance is shown to be explained by managers satisfying a specific set of family and management goals. Fund of Funds that invest exclusively outside their fund family do not face these family and management goals and they outperform Funds of Funds then invest inside the family.

DOI:10.1561/104.00000056