Clone Fund

Definition of 'Clone Fund'


A mutual fund that aims to replicate the performance or strategy of a larger, successful mutual fund. A clone fund may be set up by a mutual fund company when the original fund has grown too big to be managed efficiently, or if the company wishes to introduce a different pricing structure. In Canada, clone funds referred specifically to funds that used derivatives to bypass the foreign content restriction that previously existed in retirement accounts.

Investopedia explains 'Clone Fund'


While the investment objective of a clone fund is to match the performance of the original fund, its actual performance may differ, depending on a number of factors, such as whether the portfolio manager/s are the same for both funds, and the differences (if any) in investment style and trade execution for the two funds.

Clone funds were popular in Canada earlier because the amount of foreign content in registered retirement savings plans (RRSPs) was restricted, until a legislative change in 2005 eliminated the 30% foreign content limit. When the foreign content restrictions were in effect, a Canadian investor who wished to invest in the S&P 500, but was already at the 30% limit in his or her RRSP, could do so by investing in an S&P 500 clone fund offered by a number of Canadian mutual fund companies. While these funds were devised to replicate the performance of the S&P 500, they were classified as Canadian property since their main assets consisted of derivatives trading in Canada.



comments powered by Disqus
Hot Definitions
  1. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  2. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  3. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  4. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  5. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  6. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
Trading Center