At first glance, funds of funds appear to be a good alternative to the sometimes quite expensive asset management services offered by banks. The bottom line is that they usually turn out to be expensive investments with poor return prospects.
The most important thing in brief:
- Funds of funds are usually unattractive due to high costs.
- Alternatively, you can achieve your investment goals as needed through a combination of inexpensive ETFs and achieve higher returns.
How do funds of funds invest?
The funds of funds approved in Germany do not invest directly in stocks, bonds or real estate, but in investment funds that have themselves invested in stocks, bonds or real estate.
What at first glance appears to be a good alternative to the sometimes quite expensive asset management offered by banks, ultimately turns out to be an investment with high fees and unattractive returns for investors.
Depending on the investment strategy, the funds of funds have different proportions of equity, bond, real estate, money market and other investment funds. Strategies with small equity fund shares are offered for security-oriented investors, while those with larger equity fund shares are offered for those who are more risk-averse.
What are the costs of funds of funds?
When purchasing the fund of funds, there are usually one-off costs (issue surcharge). The fund of funds usually acquires the individual funds without issuing fees. However, what has a major impact on returns in the long term is the double ongoing cost burden. Because The administration of both the individual funds and the fund of funds can be paid for, and there are also capital investment costs.
Overall, the costs, based on the managed fund assets, are often 2 percent or more – and this year after year. You can read about this in the fact sheet or the basic information sheet. These costs significantly reduce the possible return. It is therefore hardly surprising if the return on funds of funds is on average lower than the return on cheaper investment funds, such as exchange-traded index funds.
What good alternatives are there?
From the point of view of the consumer advice center, a stock investment fund, especially an ETF that invests broadly in international securities, is clearly the better choice for opportunity-oriented investors. If you have limited risk appetite, we recommend a mix of stock ETFs and bond ETFs or deposit-insured forms of investment. You can read how you can choose such a mixture yourself and how best to invest your money in the linked article.
