An Empirical Analysis of U.S. Dollar-Trading Newcits

Abstract

The present article uses a sample of 66 U.S. dollar-trading undertakings for collective investment in transferable securities (UCITS) to find that the risk-adjusted performance of some strategies (i.e., equity long-biased, FOF, fixed income and sector specific) outperformed the corresponding traditional hedge fund indices over the January 2006 to March 2010 period. However, with the exception of the fixed-income strategy, all other strategies produced a volatility that was higher than that of the index. The funds of funds (FOF) classification had a risk similar to that of the index. More worryingly, during the crisis it appears that some strategies (i.e., emerging markets and equity long/short) delivered a lower risk-adjusted performance than that of their benchmarks. Further evidence shows that sector-specific strategies produced stronger risk-adjusted returns than their benchmarks albeit at a higher cost of volatility. Overall, the fixed income and FOF newcits delivered superior risk-adjusted performance at a lower or comparable risk to that of similar traditional hedge funds.