Why may a fund of funds be appealing to investors?

A fund of funds is particularly appealing to investors primarily due to its pre-selected asset allocations. This investment vehicle pools capital and invests in a range of other funds, allowing for inherent diversification across various asset classes, sectors, or investment strategies. By pre-selecting these funds, the managers of a fund of funds provide investors with a professionally curated portfolio that can reduce individual investment risk, as it seeks to balance potential returns across different market environments.

The pre-selected asset allocations address the need for diversification and professional management, which can be time-consuming and complex for individual investors to achieve on their own. Consequently, this streamlined approach helps investors who may lack the expertise or the resources to build a diversified investment portfolio.

In contrast, options related to higher risk exposure or lower management fees may not inherently make a fund of funds more appealing; higher risk could deter risk-averse investors, and while fees may vary, they are often comparable to those of traditional mutual funds. Direct control over each mutual fund isn't typically a feature of a fund of funds, as these structures are designed to allow managers to make decisions on behalf of investors, which can be a drawback for those seeking granular control over their investments.