Are FOFs Better Than Direct Investment?

It has been more than 20 years since the birth of China’s public fund in 1998.During this period,with the introduction of relevant policies and regulations,various fund products have emerged,which greatly enrich the public fund market.In 2016,the China Securities Regulatory Commission(CSRC)enacted the ’Guidelines for Publicly Offered Securities Investment Funds No.2-Guidelines for Funds of Funds’.In 2018,the CSRC issued the’Guidelines for the Pension Target Securities Investment Funds(for Trial Implement)’.FOFs have gradually entered the investors’ view as a new fund product.The full name of FOF is ’Fund of Funds’,and its main investment targets are ordinary funds in the market.Facing Chinese residents’ and huge pension assets’increasing needs of investment,FOFs that focus on ’preferred funds and stable income’are good investment targets.Therefore,it is particularly important to study the performance of publicly offered FOFs in the current market.This literature focuses on 57 FOFs established before July 1,2019 in the public fund market,and uses multi-dimensional performance data from July 1,2019 to December 31,2020 to compare with direct investment funds and synthetic FOFs constructed by simulation.This paper sets dummy variables to distinguish FOFs and comparison objects,and test through the significance of regression coefficients.Empirical results show that:(1)Comparing real FOFs with whole direct investment funds,FOFs’ risk and return are between hybrid and bond direct investment funds,and FOFs’ risk-adjusted return is significantly better than that of equity direct investment funds and bond direct investment funds;(2)Comparing the performance of real FOFs with synthetic FOFs constructed by random sampling taken from direct investment funds,real FOFs’ risk and return are still between the hybrid synthetic FOFs and bond synthetic FOFs,and the risk-adjusted indicator-Treynor is significantly better than three types of synthetic FOFs;(3)Considering the major asset allocation strategies used by the real FOFs and the disposal effect of investors in the real market,real FOFs have lower risk volatility,lower retracement amplitude and higher risk-adjusted return than synthetic FOFs.On the basis of performance comparison,this paper further explores the influencing factors of FOF performance,and proves using panel regression model:(1)Manager’s fund selection ability will promote the performance of FOFs in the next period;(2)In the current public fund market,FOFs don’t charge higher management fees;(3)The larger the fund management company of the FOF,the higher the FOF’s management fee;the more direct investment funds under the company or the higher the proportion of five-star funds,the lower the FOF’s management fee.On the one hand,this literature proves that publicly offered FOFs have more stable return,which has reference value for non-professional investors and pension funds to choose their investment targets.On the other hand,it explores FOF performance from the perspectives of manager’s ability and management fee rates,which also has reference significance for further academic research in this field.