They are funds set up and owned by the Isle of Man insurance companies with the objective of mirroring the performance of a number of pre-selected external funds.
The insurance companies select the best funds such as Barclays, Fidelity, Perpetual, HSBC etc. and then set up their own version of the selected funds. They mirror the performance by investing in the underlying fund. The advantages are:
A. To the underlying fund:
They see the insurance company as the client and so do not have any marketing or adminstration costs and therefore have no need to charge entry or exit fees.
B. To the insurance company:
They can offer a service to their clients by providing access to some of the best funds in the world without entry or exit charges.
C. To you, the client:
Many of the best world funds are available without entry or exit costs
Switching in and out of these funds is possible at any time and with no charge.
Investments can be spread world-wide via one investment company and vehicle.
Not locked into one particular fund manager or fund
Can easily move out of funds that do not perform in the short term.
Can move into the best performers of the period at no cost
Can take a proactive approach to long term savings.
Dramatically increases the growth of your investment.
This ability to have unlimited free switching has given rise to a number of companies such as Lanson Financial & Collins Stewart running "funds of funds" to provide an active management service. Their objective is to keep investor money invested in the best funds world wide and rebalance as markets move.