Graham Bentley: Do model portfolios or funds of funds deliver the better outcome?

Where is the better outcome?

With more and more model portfolios appearing on the market, gbi2 managing director Graham Bentley analyses whether they deliver a better outcome for investors than a simple risk-targeted fund of funds.

For decades, asset managers have been marketing 'funds of funds' (FoFs) as a simple way for investors to access hundreds of underlying securities across global stockmarkets. FoFs can be divided into two cohorts: those that can choose to invest in competitors' funds are considered 'unfettered', while the rest have chosen to select mainly from their own in-house fund range. While, given their wider opportunity set, unfettered funds might be expected to exhibit better performance than their fettered cousins, to an extent this is offset by costs. Unfettered funds have to buy competitor...