Portfolio selection, diversification and fund‐of‐funds: a note

Simone Brands and David Gallagher

Accounting and Finance, 2005, vol. 45, issue 2, 185-197

Abstract: The present paper examines the performance and diversification properties of active Australian equity fund‐of‐funds (FoF). Simulation analysis is employed to examine portfolio performance as a function of the number of funds in the portfolio. The present paper finds that as the number of funds in an FoF portfolio increases, performance improves in a mean–variance setting; however, measures of skewness and kurtosis behave less favourably given an investor's preferences for the higher moments of the return distribution. The majority of diversification benefits are realized when a portfolio of approximately 6 active equity funds are included in the FoF portfolio.

Date: 2005
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https://doi.org/10.1111/j.1467-629x.2004.00130.x

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