FOF funds are also called funds in funds. Ordinary open-end funds take stocks, bonds and other securities as investment targets, while FOF funds take funds as investment targets, that is, funds that invest in other funds and indirectly invest in stocks, bonds and other securities by investing in other funds. Therefore, in the case of investing in the same kind of assets, the risk coefficient of FOF funds is lower than that of similar open-end funds. So how does the FOF fund work?

FOF fund takes a basket of funds as the investment object, and indirectly invests in securities such as stocks and bonds through the held funds. The fund company selects the best funds according to strict procedures, so as to achieve better investment returns on the basis of controlling risks. At the beginning of the establishment of FOF fund, the investment target was private equity fund. Because of the high investment threshold of private equity fund, investors who could not meet the capital requirements could only be discouraged, so some institutions issued FOF fund to build a bridge for those investors who wanted to invest in private equity fund.

Advantages of FOF funds

It is convenient and simple. With the development of the fund market, the number of funds is growing, and there are more than 8, open-end funds in the market. Faced with a large number of funds, it is more difficult and risky for investors to select funds. However, FOF funds form a fund portfolio through fund managers, and you can buy a package of high-quality funds with one click, which is equivalent to professionals helping you select good funds and waiting for you to invest.

the risk coefficient is low. FOF fund greatly reduces the risk of the invested fund by investing in the fund portfolio, and this fund portfolio is selected by professional fund managers, which also reduces the error of investment variety selection to some extent.

optimization of asset allocation, FOF fund invests in various assets and industries through a package of funds, which can involve a shares, hong kong stocks, bonds, currencies, etc. at the same time, which can basically solve the problem of asset allocation.

to reduce the fluctuation, the asset allocation of FOF fund can greatly reduce the fluctuation of the fund to a certain extent.

allocation of FOF funds

FOF funds in the market generally hold 1 to 15 funds. According to statistics, the purpose of risk diversification can be achieved by holding 3 funds in a portfolio. Therefore, FOF funds generally do not hold more than 3 funds, but hold more than 3 funds. As the number increases, the effect of risk diversification will drop significantly.

selection of FOF funds

FOF funds in the market can be divided into three categories according to fund managers: the first category, fund managers are steady in style, have mature investment ideas, do not chase market hotspots, stick to their own ability circle and have excellent long-term performance. It can be used as a core asset allocation. Secondly, fund managers provide instrumental products, such as theme funds, and when appropriate, they can choose the right fund to suit the market style. Third, fund managers have poor long-term performance, frequent transactions and no clear investment style, which we need to avoid in the investment process.