The Role of Fees in the Mutual Fund FOF’s Performance —— Evidence in China

Abstract

The fund of funds (FOF) in the mutual fund has been booming in recent years, attracting investors’ interests, especially in China. Meanwhile, the fee structure will be taken into consideration by investors and fund managers. This paper examines the relationship between the fees of FOF and fund performance in China market. Aiming to achieve the result, it applies the Capital Asset Pricing Model, the Fama-French three factors model, the Carhart model and the Fama-French five factors model to measure the fund performance. Based on the data consisting of 91 mutual fund FOFs from 2017 to 2021, this study looks into the relationship between fees and FOFs. It is expected that the management fees are negatively related to the risk-adjusted return, with significant coefficients. The main results reveal that a negative relationship at the statistical level, implying lower fees is related to better fund performances. The robust check also confirm the negative relation. The findings provide new insight for the investors, fund managers, and fund companies, contributing to mutual fund FOFs studies.