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BeginnerBrazilian REITs · Lesson B3.3 · Module B3

Funds of funds and hybrids

Module B3: The types of FII

11 slides~5 minquiz at the end

In this lesson

  • What's inside a FoF
  • The fees-on-fees math
  • When a FoF is worth it
See the slides
Russian matryoshka dolls of different sizes side by side

Brazilian REITs · Lesson B3.3

The fund that buys other funds

Diversification in a single share — with fees stacked on fees.

The map

Four ways to build a FII

  • Brickowns buildings and lives on rent
  • Paperbuys CRIs and lives on interest
  • Fund of fundsbuys shares of other FIIs
  • Hybridmixes all three, as its bylaws allow

A fund of funds is often called a FoF.

Inside a FoF

One fund, many funds inside

FoF shareholdersyou and the other investors
FoF managerpicks which funds to buy
The FoFowns the shares
FoF fee1.0% a year
Office FII
Warehouse FII
CRI FII

Each fund inside has its own manager and fee — 0.9% a year on average in this example.

Fees on fees

What it costs per year

1.0%FoF fee+0.9%fees of the funds inside=1.9%per year
R$ 100,000×1.9%=R$ 1,900per year, before any result

You never see the underlying funds' fees: they're taken out of their income first.

Direct or through a FoF?

What you get and what you pay

Buy the FIIs yourselfThrough a FoF
Cost per year~0.9%~1.9%
Own 20 funds20 purchases1 share
Keep trackyou read it allthe manager reads
Buy at a discountif you know howif the manager is good

The FoF yardstick

How much extra the manager must deliver

+1 point

a year above the funds it buys, just to break even

On R$ 100k, that's R$ 1,000 a year. Beyond that, the extra fee pays for itself.

And hybrids?

A hybrid mixes everything in its portfolio

  1. 45%Buildings
  2. 35%CRIs
  3. 15%FII shares
  4. 5%Cash

Illustrative example. The investment policy in the bylaws sets which mix is allowed.

Remember this

Three ideas from this lesson

  1. A FoF buys fundsOne share gives access to several FIIs picked by a manager.
  2. Stacked feesYou pay the FoF's fee and, inside, the fees of the funds it holds.
  3. Worth it if it beats the feeThe manager must beat the extra cost. Hybrids mix buildings, CRIs and shares.

Quick test · 1 of 2

Why does a FoF usually cost more overall?

See answer

Fees on fees. The FoF charges its own, and each fund it buys has already taken its fee before paying out.

Quick test · 2 of 2

A 0.8% FoF holding 1.0% funds. Cost on R$ 50k?

See answer

0.8% + 1.0% = 1.8%. R$ 50,000 × 1.8% = R$ 900 a year, before any result.

Lesson complete

Next lesson

B3.4Beginner · Lesson B3.4Development, Fiagro and niche typesThe fund that builds, the cost of delays and the Fiagro, the agribusiness fund under the FII law.Continue
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Educational content, written for learners. Not investment advice.