With Funds of Funds, A One-Stop Advantage

However, the expertise and even the diversification of the fund itself can come at a price. One of the chief criticisms of funds of funds is that their fees can be higher than those of other mutual funds because each constituent fund charges fees. On top of those fees, analysts can charge fees to manage the fund.

The bottom line will become easier to discern next year when new regulations take effect that require the overall fee to be clearly listed.

In the meantime, many funds of funds from big players such as Fidelity are composed of proprietary mutual funds so those funds of funds have greater control over fees.

Many of the newer funds of funds waive fees or work to hold down fees to make them more competitive with other types of funds.

It can be a struggle for some smaller players to hold down fees, though they will often argue their watchful eye justifies the higher fees.

His fee structure is what keeps Curt Teberg, manager of an eponymous fund of funds, from sitting still for too long. Teberg, who administers his fund from Duluth, Minn., is focusing on adding assets in order to drive down fees, which he acknowledges are high -- 223 basis points, compared with an average of 170 basis points for the conservative category in which the Teberg Fund resides.

"They certainly have put together a pie that costs less money," he said, referring to the larger funds of funds.

Teberg contends, however, that many of his clients don't mind the higher fees because of how closely he manages the fund. He notes that he's not wedded to one fund family when searching for, say, a small-cap growth fund.

Management isn't just about picking funds, Teberg said. His fund, which has $34 million in assets, recently moved much of its money into cash. Teberg has grown uneasy about the direction of the stock market. The fund is up 4.35 percent so far this year.