CFA Level I · CFA Level I Exam · Alternative Investment Features, Methods, and Structures
A fund of funds is most likely to be preferred over a direct single-manager fund investment by an investor seeking:
A fund of funds is preferred for greater diversification across managers and delegated manager selection. It adds a second fee layer, so total fees are higher rather than lower, and it usually reduces transparency into underlying positions.
- Alower total fees through a single layer of charges
- Bgreater diversification across managers with delegated manager selectionCorrect
- Cfull transparency into every underlying position held
Explanation
A fund of funds spreads capital across several managers and delegates due diligence and selection, giving diversification. It adds a second layer of fees, so fees are higher, and transparency into underlying positions is typically reduced.
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