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Why a fund of funds offerings makes sense

Apart from significant diversification benefits funds of funds investment options offer a particular advantage for investors seeking tax efficiency.

A fund of funds (FoF) offering is an investment strategy whereby a different selection of funds are held within a singular fund. This type of investment structure is also often referred to as a multi-manager fund and is a style of investing that provides a host of benefits to investors.

One of the largest benefits of investing in a FoF structure, is the capital gains tax (CGT) implications, or lack thereof.

Any changes made within the fund do not trigger CGT implications, as the redemptions or sale of assets take place within the fund. It’s the same premise as a single unit trust fund redeeming shares within a fund; it simply does not trigger any CGT. This is a huge benefit to investors as it minimises CGT implications in the long run.

This is also a massive benefit of the FoF structure, and allows the fund management team of such a fund to make more changes where they see fit, without any tax implications to the investors. One of the largest drawbacks to investing is unfortunately the tax implications, but a FoF structure allows the investment management team to focus more on the offering, as opposed to worrying about tax implications for advisors.

Another benefit that the FoF structure offers is that it allows any changes or change in investment strategy to apply to all investors instantaneously. What this means is that the underlying equity or offshore exposure can be increased or decreased as and when needed, and all investors will benefit from the change at the same time.

In the past, when investors were invested in individual funds, any changes required switch forms to be signed, and due to the admin-intensive nature of the changes, it could result in delays. However, with investors being placed in a FoF structure, and changes now benefiting the investors immediately, it does not require any switch forms to be signed.

FoF options have gained popularity in the investment universe and many asset and fund managers now have such funds included in their overall offering.

Although FoF investment options have different levels of risk for investors, the nature of how they are compiled offers investors exposure to a much wider range of underlying assets, thus delivering a somewhat smoother experience with fewer dramatic upward or downward spikes. It is, however, important to note – as is the case with all investments – that it must be viewed as a long-term commitment. This is how the best returns are delivered over time.

Investment decisions in FoF investments are typically made by an investment committee. This way information gathering is optimised and an extensive process of due diligence is completed before asset managers or particular themes are selected.

It is strongly advised to consult a  qualified professional financial planner before making changes to any investment portfolio, as every investor has unique circumstances and requirements.

  • Brenthurst Wealth partnered with Boutique Collective Investments (BCI) and its subsidiary, Boutique Investment Partners (BIP), to introduce a FoF offering in 2016. The company and its partners set up three such funds, each with a different level of risk.
  • Each fund is made of different funds, with fund exposure to some notable fund management companies such as Allan Gray, Investec, Stanlib, Coronation and Counterpoint.

ADVISOR PROFILE

Mags Heystek

Brenthurst Wealth

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