Premium
Portfolio selection, diversification and fund‐of‐funds: a note
Author(s) -
Brands Simone,
Gallagher David R.
Publication year - 2005
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2004.00130.x
Subject(s) - portfolio , diversification (marketing strategy) , kurtosis , skewness , fund of funds , equity (law) , modern portfolio theory , portfolio optimization , business , passive management , actuarial science , economics , financial economics , econometrics , finance , mathematics , statistics , market liquidity , marketing , political science , law
The present paper examines the performance and diversification properties of active Australian equity fund‐of‐funds (FoF). Simulation analysis is employed to examine portfolio performance as a function of the number of funds in the portfolio. The present paper finds that as the number of funds in an FoF portfolio increases, performance improves in a mean–variance setting; however, measures of skewness and kurtosis behave less favourably given an investor's preferences for the higher moments of the return distribution. The majority of diversification benefits are realized when a portfolio of approximately 6 active equity funds are included in the FoF portfolio.