Funds of funds, which have receded in public perception over the years, continue to constitute a substantial portion of the German fund universe. Originally established in large numbers during the 2000s, they accounted for almost half of the 882 active funds in this category today. Despite a decline in new launches since 2020, primarily due to the rise of cost-effective ETFs and online brokers, the figures demonstrate their ongoing relevance. Funds of funds comprise nearly seven per cent of the total fund volume in Germany and, notwithstanding potentially higher cost structures, offer relevant advantages.
Analysis of relevant data shows that funds of funds, particularly in the balanced fund sector, exhibit remarkable performance. Over two-thirds of all funds of funds are assigned to this segment. On average, they achieved higher returns across all examined periods in three out of four global balanced fund categories compared to their respective peer groups. In the remaining balanced fund peer group, outperformance was recorded over one and three years. These excess returns often correlate with increased volatility, indicating a generally more aggressive allocation of portfolios.
However, in other investment categories, differentiated results were observed. In the Global Equity segment, which also includes a large number of funds of funds, the products lagged significantly behind their peer group and the benchmark MSCI World. The outperformance achieved in the balanced fund sector is particularly noteworthy considering the generally higher costs associated with funds of funds. These result from the necessity to bear both the fees of the underlying funds and the management costs of the fund of funds. The average ongoing costs for funds of funds are 2.04 per cent for equity funds, 1.83 per cent for balanced funds, and 1.19 per cent for bond funds.
Market Structures and Quality Indicators
The market for funds of funds is dominated by established players. Measured by the number of portfolios, Deka Vermögensmanagement (DVM) operates as the largest provider with 63 funds. In terms of assets under management, DWS holds the top position with EUR 39.8 billion. Regarding the top-rating quota, i.e. the proportion of funds rated A or B by Scope, Union Investment demonstrates a leading position. The company achieves a top-rating quota of 71 per cent, with 15 of its 21 funds of funds holding an A or B rating.
Funds of funds from Hauck Aufhäuser Lampe with 67 per cent, KEPLER-FONDS with 60 per cent, Allianz Global Investors with 53 per cent, and DVM with 51 per cent also show high proportions of top ratings. The present findings confirm that funds of funds are not obsolete investment vehicles but rather represent a specific option for investors seeking an actively managed and broadly diversified investment structure. Their ability to generate added value despite higher costs, especially in the balanced fund segment, remains a relevant factor. The attractiveness of these funds largely depends on the underlying strategy, its precise implementation, and the quality of management.
Assessment for Investors
- —Despite popular belief, funds of funds are not obsolete models but a viable investment option.
- —They often offer outperformance in the balanced fund segment, usually accompanied by higher volatility.
- —The cost structure of funds of funds is characterised by double fees, but must be considered in the context of the returns achieved.
- —The quality and attractiveness of a fund of funds are closely linked to management expertise and the consistent implementation of the investment strategy.
