Portfolio selection, diversification and fund-of-funds: A note

Blackwell Publishing
Publication Type:
Journal Article
Accounting and Finance, 2005, 45 (2), pp. 185 - 197
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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 meanvariance 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.
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