Acquired Fund Fees and Expenses Definition
Acquired Fund fees and Expenses (AFFE) is a financial term that describes the operating expenses incurred by an underlying fund of a Fund of Fund (FoF). AFEE outline fees and expenses attributable to underlying funds in FoF. A multi-manager of FoF uses AFFE as a line item in reporting the operating expenses of underlying funds.
A Little More on What are Acquired Fund Fees and Expenses – AFFE
Acquired Fund fees and Expenses (AFFE) is a reported item in a FoF prospectus which became a requirement in 2007. AFFE reports fees and expenses that are attributable to multi-manager and fund-of-funds options. The goal of making AFFE a requirement is to ensure and stimulate transparency for investors in the market, especially investors that deal with funds with complex structure.
Before AFFE reporting was mandated, it was a popular belief that underlying funds have no expenses, neglecting the expenses of multi-manager. The ‘fees’ and ‘expenses’ included in the line item are management fees that multiple managers receive.
The Securities and Exchange Commission (SEC) following the provisions of the Investment Company Act of 1940 mandated Acquired Fund fees and Expenses (AFFE). It became a registration requirement that fund managers include “acquired fund fees and expenses”, including fees paid to multiple managers when compiling a comprehensive schedule.
Before 2007, FoF investments are claimed to have no expenses and thereby reported as zero. Also, disclosure before 2007 was not transparent enough since it presented no expenses reporting for underlying funds.
However, with AFFE as a new requirement, transparency is enhanced in disclosures. As disclosures now contain standard expenses of a fund, fund’s fee and other expenses incurred by shareholders. multi-manager and fund-of-funds options is the Neuberger Berman Absolute Return Multi-Manager Fund. In this multi-manager fund structure, standard fees are recorded, so also management fees between 1.92% to 1.81% depending on the class of the shares.
Included on the fund structuring is the distribution fee for class A shares which was 0.25% while Class C shares had a 1.00% distribution fee. All operating expenses are also accounted for in the fund structuring before the total annual expenses are estimated.
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Variable annuities and the new retirement realities, Condron, C. M. (2008). Variable annuities and the new retirement realities. The Geneva Papers on Risk and Insurance-Issues and Practice, 33(1), 12-32. People today face the prospect of a retirement that may likely last 25 years or even longer. Concerns about the stock markets’ volatility and the potential impact on their portfolios has caused many individuals approaching retirement to retreat from investments in equities and shift into fixed-income assets, despite historical evidence that investment in equities provide long-term returns superior to fixed-income returns. This conservative approach, embodied in such tools as Target Date Funds, for some investors could hamper asset accumulation and may make it less likely that assets will remain adequate to provide sustained sources of income during a lengthy retirement period. The insurance industry is uniquely positioned to offer those nearing retirement an alternative investment and risk management strategy through variable annuities. Features in the newer variable annuity product designs encourage individuals to remain invested in equities at older ages by cushioning them from some of the consequences of market volatility. As a result, investors are more apt to maintain a more equity-weighted investment portfolio and thereby have an opportunity to realize a greater portion of the superior growth potential that equities have historically provided over the long term.
Target-date mutual funds, Spitzer, J. J., & Singh, S. (2011). Target-date mutual funds. In Consumer Knowledge and Financial Decisions (pp. 269-283). Springer, New York, NY. Because target-date funds are one of the three approved default options for many retirement plans, their popularity is likely to increase. Target-date funds usually have an aggressive equity exposure for young investors and become increasingly conservative as the workers approach retirement. This shift is commonly referred to as a fund’s “glide path.” In this chapter, target-date funds are described, research is reviewed, and the theoretical basis for their design is examined. Evidence of the performance of target-date funds during retirement years is provided, guidelines for their selection are given, and suggestions for future research are made. Target-date funds are a relatively new phenomenon, with discoveries and improvements still ongoing. Future research will attempt to further incorporate finance theories in ways that will undoubtedly improve them. This chapter, however, is focused only on the current state of target-date funds and on how purchasers of such funds can form strategies to obtain desirable results.
Different Perspectives on Investment Performance, Tweedy, B. G. V. F. (2017). Different Perspectives on Investment Performance. This booklet provides a historical perspective concerning the year-by-year variability of investment returns for the Tweedy, Browne Global Value Fund since its inception in 1993, as compared to benchmark indices. The Fund has had an excellent long-term record, which has bested its benchmark by a considerable margin, yet unquestionably the return stream has been lumpy, with numerous periods of underperformance followed by periods of outperformance. (Past performance is no guarantee of future results. See page 1 for the Fund’s performance records.) We believe it is important for investors to be aware of the general pattern, sequence, and composition of investment returns for the many smaller periods of time that comprise a successful long-term investment track record. You can think of investing as a long-term journey, a veritable marathon, with many starts, stops, changes of scenery and occasional bumps. Moreover, we believe you will be much more likely to achieve your investment objectives if you know what to expect along the way. Your own psychology and ability to handle the emotional ups and downs of investing are likely to be important determinants of your long-run investment success. If this booklet serves to keep you on your journey, especially when there are some bumps, then we at Tweedy, Browne will have served you well.
Do Funds of Mutual Funds Add Any Value?, Lee, J. H. Do Funds of Mutual Funds Add Any Value?. This paper examines funds of mutual funds (FoMFs) as a competing structure to advisory services to see if they offer any value to investors. First, the flow-performance relationship associated with FoMF buys and sells suggests that affiliated FoMFs (i.e., funds that only invest in funds within their own family) instill a competitive environment in the family by increasing inflows to good performing funds and withdrawing investments from poorly performing funds. These affiliated FoMFs, who are “insiders” within the fund complex, also tend to buy/sell the right funds and therefore display a superior fund selection skill. In other words, the affiliated FoMFs’ capital allocation decision is smart and generates positive abnormal returns. However, unaffiliated FoMFs show no sensitivity to performance nor do they display fund selection ability. This result is partly driven by the strict regulatory constraint unaffiliated FoMFs face. Overall, professional oversight of fund operations and superior selection of constituent funds are the value-additions that FoMFs provide for the investors.
The evidence on target-date mutual funds., Singha, S. (2016). The evidence on target-date mutual funds. Financial Services Review, 25(3). This paper assimilates the knowledge and evidence on target-date mutual funds (TDFs). It begins with a discussion of the environment that contributes to the tremendous growth of TDFs. Next, a survey of the theory and recommendations on glide paths indicates a trend towards focusing on meeting retirement liabilities, rather than optimizing asset only portfolios. A review of performance evaluation metrics for TDFs shows that none of the available indexes possesses all seven characteristics of an ideal benchmark. Plan sponsors can provide better outcomes by offering multiple risk profile TDFs while researchers can focus on improving glide path and benchmark design