Clone Fund

AAA

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.

RELATED TERMS
  1. Mirror Fund

    A type of mutual fund, typically run by a life insurance company, ...
  2. Index

    A statistical measure of change in an economy or a securities ...
  3. Registered Retirement Savings Plan ...

    A legal trust registered with the Canada Revenue Agency and used ...
  4. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
RELATED FAQS
  1. What mutual funds can be used for investing in the industrial sector?

    The industrial goods sector provides investors access to companies that engage in activities such as aerospace and defense, ... Read Full Answer >>
  2. What is the difference between a custodian bank and a mutual fund custodian?

    Custodian banks and mutual fund custodians, commonly known as mutual fund corporations, perform very similar roles for different ... Read Full Answer >>
  3. How do no-load funds typically perform relative to load funds?

    No-load mutual funds are pooled investments that do not carry an upfront sales charge when purchased or a deferred sales ... Read Full Answer >>
  4. What are the most popular mutual funds that invest primarily in the insurance sector?

    Under the purview of the financial services industry, the insurance sector is an attractive investment option for mutual ... Read Full Answer >>
  5. How should I use portfolio turnover to evaluate a mutual fund?

    The portfolio turnover percentage can be used to determine the extent to which a mutual fund turns over its stocks and assets ... Read Full Answer >>
  6. What are the risks involved in a banker's acceptance?

    College savings accounts are excellent ways to encourage saving for future college costs. Contact your investment professional ... Read Full Answer >>
Related Articles
  1. Retirement

    Lazy Portfolio Strategies For Your RRSP

    Check out this cheap and easy way to secure good returns for the long term.
  2. Markets

    Company Clone Cost Reveals True Value

    Find out how calculating a reproduction cost for a company can beat out the dividend discount model.
  3. Home & Auto

    Subaccounts: As Good Their Clone Funds?

    Variable annuity subaccounts are virtual clones of mutual funds but they have their own CUSIP number and their historical performances are tracked separately.
  4. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  5. Mutual Funds & ETFs

    Mutual Funds or ETFs: Which is Better?

    Trying to decide between a mutual fund or ETF? Here's what you need to know.
  6. Investing Basics

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  7. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  8. Professionals

    5 Signs That You Have a Lousy 401(k) Plan

    Knowing whether a 401(k) plan is good or not so good is important. This will help participants decide how much to invest and when to demand improvements.
  9. Entrepreneurship

    Why Small Business Owners Need Financial Advisors

    Small business owners are too busy to effectively manage their own money. That's why a financial advisor can be a big help.
  10. Professionals

    A Look at How the Ultra-Wealthy Invest

    Ultra-wealthy investors are cautious this year as they approach the markets. Many target mutual funds and stocks, but most also diversify their portfolios.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center