A Fund of Funds is a collective investment managed by a Fund of Funds
Management Team, who invest in other Funds managed by other Investment Managers. 

The Management Team strives to balance performance and risk by building and maintaining a balanced portfolio of investments in other funds; as opposed to directly investing into, for example, company stocks and shares themselves.

The structure of Fund of Funds allows the Fund Manager to quickly react to changes in economic/market conditions by adjusting the balance of the overall Fund in terms of asset allocation (how much is invested into each type of asset class) to take advantage of market opportunities. Instead of having to sell a variety of different holdings, the Management Team can simply adjust the fund make-up by selling a holding of a specific Fund.

This flexibility, combined with the expertise brought to bear by the Fund of Funds Managers, means they can quickly alter the asset allocation of the Fund to take advantage of potential market rises before they happen, but also defend the Fund’s position in times of market volatility. Another added benefit of Fund of Funds is that Fund Managers have the ability to invest into other sectors to help boost performance, e.g. gold, commodities etc.
A feature which can be used in conjunction with Collectives is a Platform; this can allow you to hold your Fund of Funds investments in one place and receive consolidated reports and valuations.

Benefits

• Diversification - spread of assets, sectors, markets, Funds and Fund Managers.
• Active Management - switch quickly between sectors to ensure monies are in the right place at the right time.
• Professional Fund Management - exposure to a number of professional managers.
• Risk - limit risk through diversification and continual monitoring of holdings.
• Tax Benefits - simplified tax returns and no CGT payable on internal transactions.

Potential drawbacks

• Your capital is at risk
• Not suitable for investors who want to adopt a very high level of risk
• Fund of Funds are typically more expensive than other investment solutions available, because they include both the Fund of Funds team costs and the costs of the underlying Fund Manager 

Taxation

• Income subject to income tax
• Gains subject to capital gains tax

All investment returns are determined by performance, market conditions and overall economic factors. 

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