What is a Clone Fund?

Answer:
You know what a clone is, right? You know what a mutual

fund is, right? Think of it this way, a clone fund attempts to replicate a successful mutual fund’s performance by imitating the successful fund’s strategy. In this case, imitation is a form of flattery but with the hopes of cashing in on success. Why reinvent the wheel when another mutual fund has a proven track record?

The theory behind clone funds is that if you can find a successful mutual fund and copy its strategy, the cloned fund will eventually begin performing as well as the original. In some cases, derivatives are used to execute the match. In other cases, clone funds match an established index. This strategy was common in Canada before prohibitive legislation came into play.

These mutual funds emulate the objectives of the original fund and may even be managed by the same managers. Clone funds come in a variety of different flavors with offerings matching a variety of top performers. For example, Merrill Lynch offers a clone fund that replicates hedge funds’ foreign markets exchange strategies.


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