The performance of equity funds-of-funds in Brazil

This study aims to evaluate the performance of equity funds of funds (FOFs) in Brazil. First, panel regressions were used to identify the determinants of returns and value creation associated with FOFs. We then estimate the probability of FOFs outperforming mirror and master funds and their corresponding determinants. Finally, FOF indices are constructed and their performance is analyzed against the backdrop of the BOVA11 exchange-traded fund (ETF). The results of this research indicate that the determinants of returns are aligned with the Fama-French ‒Carhart factors, all of which have positive coefficients. However, equity FOFs exhibit lower returns than other equity funds and destroy value relative to mirror and master funds. FOFs are associated with lower risks owing to diversification effects. In terms of probability, equity FOFs are not more likely to achieve superior returns than other funds. During the 2015 economic crisis in Brazil, FOFs were associated with higher probability. Finally, the FOF indices suggest profitable strategies that focus on factors such as size, growth, and liquidity.