Fund of Funds (FOF) in Australia: 2025 Guide to Diversified Investing

In a world where global markets shift by the hour and investment opportunities multiply, Australian investors are seeking smarter ways to diversify and protect their portfolios. One vehicle rising in prominence is the Fund of Funds (FOF) — a managed fund that invests in a collection of other funds. As we move through 2025, FOFs are evolving with new regulations, fee structures, and strategies tailored to the modern investor. Here’s what you need to know to make the most of this approach.

What is a Fund of Funds (FOF)?

A Fund of Funds is an investment product that pools money from investors and allocates it across a range of underlying managed funds, ETFs, or hedge funds. Rather than selecting individual stocks or bonds, the FOF manager curates a portfolio of fund managers, each with their own style and asset class focus.

• Diversification: FOFs spread investment across multiple funds, reducing exposure to any single manager or asset class.

• Professional Management: Investors benefit from the expertise of both the FOF manager and the underlying fund managers.

• Access to Alternatives: Some FOFs include hedge funds, private equity, or international funds not easily available to retail investors.

In Australia, FOFs are commonly available through superannuation platforms, listed investment companies (LICs), and managed accounts.

Why FOFs Are Gaining Momentum in 2025

Several factors have contributed to the growing interest in FOFs among Australians this year:

• Regulatory Streamlining: ASIC’s 2025 update to managed investment scheme (MIS) disclosure requirements has made FOF fee structures more transparent, helping investors understand the true cost of layered management fees.

• Volatile Markets: With global equities experiencing increased volatility, FOFs’ built-in diversification offers a buffer against regional or sector-specific downturns.

• ESG Integration: A growing subset of FOFs in Australia now focus exclusively on underlying funds with strong ESG (Environmental, Social, Governance) credentials, responding to demand from both institutional and retail investors.

For example, the Vanguard Diversified Funds — a popular FOF series in Australia — expanded its ESG range in 2025, attracting both SMSF trustees and young investors seeking values-driven returns.

Costs, Considerations, and the 2025 Fee Debate

While FOFs offer access and diversification, their layered structure can lead to higher fees compared to single-manager funds. Investors should be aware of two main types of fees:

• Underlying Fund Fees: Each fund within the FOF charges its own management and (sometimes) performance fees.

• FOF Manager Fee: The FOF itself charges an additional layer for selection, monitoring, and rebalancing of the underlying funds.

Responding to ASIC’s 2025 push for clearer disclosure, several Australian fund managers have started publishing total cost ratios (TCR), which combine all layers of fees into a single figure. For example, an FOF with an underlying weighted fee of 0.60% and a FOF manager fee of 0.30% would now display a TCR of 0.90% per annum.

Key questions for investors considering an FOF in 2025:

• Does the FOF provide access to strategies or markets I couldn’t reach on my own?

• Is the diversification benefit worth the extra cost?

• How often does the FOF rebalance, and does it align with my risk tolerance?

Real-World Examples: How Australians Are Using FOFs

FOFs are popular among both retail and institutional investors, often as a ‘core’ holding in a diversified portfolio. Here are two current use cases:

• SMSF Trustees: Many self-managed super funds are using FOFs to gain global exposure without having to select individual international managers. The iShares Diversified ETF series, for example, functions as a FOF of various index-tracking ETFs, offering global equities and bonds in one trade.

• First-time Investors: Robo-advisers like Stockspot and Six Park use a FOF model, allocating clients’ funds across a blend of ETFs and managed funds to match risk profiles and goals. This set-and-forget approach has gained traction with young Australians entering the investment market in 2025.

The Bottom Line: Are FOFs Right for Your Portfolio?

FOFs are not a one-size-fits-all solution, but they offer a compelling way to access a broad range of strategies and managers without the complexity of picking every fund yourself. As the industry adapts to stricter fee transparency and more ESG options, FOFs are likely to become an even more flexible tool for Australians looking to diversify in 2025.