Fund of Funds vs SPY

August 12, 2012

One of the ” Advisor”  sales vehicles that private investors have found appealing is the Fund of Funds approach.

An investor would open an account with the Advisor and his money would be invested in a portfolio of  hedge funds with separate and distinct investment styles.  The sales pitch is based on access to investment management talent not available to run of the mill private investors.  And, of course, this type of investment insures diversified portfolio manager thinking with just one investment.   Sit back and let real pros handle your money.  For this the Advisor receives 1%  annual  fee on your invested assets and 10% of any profits garnered…plus you pay any internal carrying fees relating to the specific  investment.

Sounds great – – So, why are investors pulling money out of  Funds of Funds investment vehicles ? 

 According to the NY POST, August 9 , 2012, investors pulled $50.4 billion over the past 12 months.  According to the POST, ( based on Trim Tabs Research ),  Fund of Funds have gained less than 1 % since January 2012 compared to 2.1% for funds directly invested in hedge funds without the layer of the   Advisor  middleman. During the same period SPY has gained 8.3%. and cost investors +/- $7  for the trade plus internal fees of approximately a miniscule 0.09% per annum.

When I read articles such as referred to above, I realize just how lucky I am to have learned to bypass this labyrinth and place my trust in my ability to perceive when ” surfs up ” and ride the waves on SPY. 

I’m not saying….” no danger ” ,  its just that  I do  like my chances. 

Richard Maurice Gore ( aka ) Dick, RMG, Richie from Throggs Neck  and Smiley from Woodlawn.

Leave a Reply