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

Simone Brands*, David R. Gallagher

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

26 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)185-197
Number of pages13
JournalAccounting and Finance
Volume45
Issue number2
DOIs
Publication statusPublished - Jul 2005
Externally publishedYes

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