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Although affiliated fund of funds (funds investing in other funds managed by the same company) have been growing in both number and assets under management, non-affiliated fund of funds have seen much smaller inflows.

Indeed, some US fund-tracking companies ad-mit they no longer want to track them.

The reasons are simple: performance and size. Few of these funds have grown particularly large, and in most cases have under-performed their peers - although there are exceptions.

Fund of fund managers re-taliate by demanding that their funds be separately categorised by the trackers. But there are dangers in this ap-proach, for - apart from in-vesting in other funds - few of these funds have much in common. Some target dom-estic securities, others international equities, and so on. The category is filled with funds with diverse investment objectives and risk characteristics, making peer group comparison a nonsense.

US fund tracking companies agree on classifying fund of funds by objectives rather than investment strategies, although Micropal allows clients to filter out fund of funds as well. Analysis reveals that many have very poor performance compared to funds with similar investment ob-jectives which invest directly in their target markets. This may in part be the reason for some fund of fund managers' separatist tendencies.

Despite this, it is imperative that these funds continue to be monitored by independent statistics companies. One large US-based fund an-alyst, with a large retail client base, has said that it is seeking to eliminate these funds from its coverage, which will do a disservice to both its clients and the funds themselves.

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