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. Index

    A statistical measure of change in an economy or a securities ...
  2. Mirror Fund

    A type of mutual fund, typically run by a life insurance company, ...
  3. Derivative

    A security whose price is dependent upon or derived from one ...
  4. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  5. Registered Retirement Savings Plan ...

    A legal trust registered with the Canada Revenue Agency and used ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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. Professionals

    Tips for Gen X Savers at Age 50

    This is the time to stop and take a careful assessment of where Gen X savers are and see what changes they need to make to achieve their financial goals.
  6. Professionals

    Should Investors Nix Actively Managed Funds?

    Index fund returns are on a tear but does this mean investors should nix actively managed funds?
  7. Professionals

    Top Financial Education Sources for Engineers

    A breakdown of the top financial education sources for engineers.
  8. Mutual Funds & ETFs

    Are These 2015's Most Promising Mutual Funds?

    For 2015, the mutual funds covered below are likely to offer more upside potential than the vast majority of mutual funds in existence.
  9. Mutual Funds & ETFs

    Why These Could Be 2015's 10 Best Mutual Funds

    These 10 mutual funds offer strong potential for 2015. Here's why.
  10. Professionals

    State Street Slashes ETF Fees

    State Street has slashed fees on 41 of its ETFs in the wake of historic redemptions.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center