Fund of funds: Advantages of this global investment alternative

The return of Donald Trump to the White House, recent monetary easing (though not as fast or extensive as initially expected), threats of trade wars, and geopolitical conflicts—all these factors are likely to influence the markets in 2025. In light of this, it’s understandable that some investors are looking for ways to diversify their portfolios to maximize returns while minimizing risk.

In this context, diversification has become a key strategy to protect investments and capitalize on opportunities in different types of assets and markets. However, achieving effective diversification is not always straightforward, especially for small and medium-sized investors who may lack the resources to analyze and access a wide range of assets.

Given these challenges, one increasingly popular option is the fund of funds. Although not a new concept, this approach remains an attractive choice for those seeking efficient access to a diversified portfolio.

What is a fund of funds?

A fund of funds is an investment vehicle that, instead of directly investing in stocks, bonds, or other assets, invests in a selection of different mutual funds, such as exchange-traded funds (ETFs) or hedge funds. This structure enables investors to access a broad range of strategies and markets through a single product.

The key advantage is that it diversifies risk, potentially yielding higher returns than investing all capital in a single fund.

Funds of funds may include a mix of fixed-income funds, equity funds, alternative funds, or a combination of these. They are typically designed to cater to various risk profiles and investment goals.

For a product to qualify as a fund of funds, over 50% of its capital must be invested in other funds. It must also invest in at least two different funds, with no single fund accounting for more than 45% of the total assets of the fund of funds. These requirements apply to both domestic and international investments.

What are the advantages of funds of funds?

1. Diversification: This is arguably the most significant benefit and one of the most crucial. By investing in multiple funds, investors gain exposure to a wide range of assets, sectors, and, importantly, regions. This global investment approach through a single product reduces the risk associated with concentrating on one asset or market.
2. Professional management: Fund of funds are often referred to as “multi-manager” investments. Why? Because the capital is invested in external funds managed by other professional managers. These managers select the underlying funds based on performance, strategy, and how well they align with the fund’s objectives. This frees investors from the responsibility of researching and analyzing each individual fund. Additionally, the fund of funds itself is actively managed, with a dedicated manager responsible for selecting the funds within the portfolio.
3. Access to advanced strategies: Funds of funds provide individual investors with the opportunity to participate in advanced investment strategies that typically require a significant capital investment (strategies that may be out of reach with other products). They also offer access to funds that may not be directly available to the average investor, such as hedge funds or private equity funds.
4. Simplicity: Rather than managing a complex portfolio with multiple funds and assets, investors only need to monitor a single product. This simplifies both the management and tracking of investments.
5. Mitigation of risk: By investing in a diversified mix of funds that operate in different markets and strategies, a fund of funds can help mitigate performance fluctuations. Losses in one area can be balanced by gains in another, reducing overall risk.

Other considerations to keep in mind

Fund of funds offer cost savings in terms of diversification. For example, if an investor were to independently invest in each of the funds within a fund of funds, they would incur higher costs compared to investing directly in this type of product.

However, it is important to note that funds of funds typically have higher fees than traditional funds, as they include both the expenses of the fund itself and those of the underlying funds.

It is also important to recognize that funds of funds are advanced investment products. As such, some investors may find it challenging to fully understand the fund's composition, since it consists of multiple underlying products.

Fondmapfre Global FI: An example of a fund of funds

If you decide that this option is the best fit for you, Mapfre AM offers Fondmapfre Global, one of its flagship fund of funds products.

Fondmapfre Global, which is exposed to equities, fixed income, and currencies, is the largest fund in the manager’s entire range. This investment vehicle manages assets worth €294.1 million, according to the latest data from Morningstar (as of January 22, 2025).

So far in 2025, as of January 21, the fund has delivered a return of 2.25%. Over the past 12 months, it has achieved a return of more than 20%, while over the past five years, it has generated annualized returns of over 8%.

This MAPFRE fund has a medium-high risk profile, with a Morningstar risk rating of 5 out of 7. In terms of composition, equities dominate the fund, representing more than 88%. Cash accounts for over 8%, and fixed income makes up 2.8%. Regionally, the United States holds over half of the portfolio’s exposure at 52.9%, followed by the Eurozone at 9.7%, and emerging markets at 8.4%. By sector, technology is the largest allocation, representing 21.6%, followed by financial services at 14.8%, and cyclical consumer goods at 11.7%.