Alternative UCITS Research Articles

The Predictability of Alternative UCITS Fund Returns

We study the out-of-sample predictability of the returns of pan-European harmonized mutual funds that apply hedge fund-like investment strategies (“Alternative UCITS”). Given these funds’ higher liquidity, investors could exploit relevant information much easier than for hedge funds, and use it for asset allocation and risk management. We use a set of 13 variables, fundamental as well as technical, and apply single predictor models, combination forecasts, and multivariate regression models. Our results show that in terms of out-of-sample R 2 , predictive models do not lead to more accurate forecasts than historic average returns. Nonetheless, forming portfolios based on predicted returns can yield substantial economic gains to investors, especially during times of market crises. Combination approaches and multivariate models can reduce estimation uncertainty stemming from time-varying predictive performance of single predictor models, leading to economic gains across different market environments.

Can investors benefit from the performance of alternative UCITS funds?

We study the performance persistence of alternative UCITS funds, which are a hybrid between mutual funds and hedge funds. Persistence is gauged by alternative measures of performance and risk. Based on contingency tables, we find that performance persists for up to 2 years following ranking. However, persistence is stronger in the short run, and ranked portfolio tests indicate that investors can benefit from persistence for only up to 1 year. The evidence for persistence in risk is ambiguous. We link fund characteristics to performance persistence and find that offshore hedge fund experience enhances persistence. Our results are robust against survivorship bias and other potential database biases.

Explain the Attractiveness of Alternative UCITS: Reasons and Consequences of Both a Growing and a Demanding Market

The hedge fund industry suffers for several years from a controversial reputation. This perception has been also accentuated through troubles triggered by the recent crisis which bring a global distrust towards such type of investment vehicles. Consequently, regulator seeks permanently to accelerate its reinforcement trend, in order to ensure a high level of investors’ protection. European hedge funds are particularly impacted by regulatory burden under the AIFMD recently implemented, but managers can opt for a UCITS structure, previously non-adapted to hedge funds but better matching current market expectations.This paper aims to introduce the global growing trend of alternative UCITS, also called “Newcits”, by searching to explain the reasons managers especially practice their strategies in the most constraining UCITS vehicle, and illustrating specific items related to investors which assert the competitiveness and the attractiveness of onshore hedge funds UCITS.

Does Manager Offshore Experience Countin the Alternative UCITS Universe?

This article examines the performance of alternative UCITS funds on the basis of manager offshore experience and, additionally, the existence of an “equivalent” offshore hedge fund. Managers with offshore experience are defined as management companies managing offshore hedge funds in addition to managing UCITS. For a sample period from 2008 to 2011, the authors find that such UCITS have a positive alpha, still with a P-value of 0.12 due to the limited size of the subsamples, which could provide some evidence of offshore manager added value. Among these UCITS, they identify further those that have an equivalent offshore hedge fund whose performance is replicated by using the same or a similar strategy, or through a swap. The authors find that “offshore-experienced” UCITS without offshore equivalents 1) exhibit no meaningful differences in mean performance compared to those with equivalents, but are 2) generally less volatile and show a positive significant alpha at the 95% level. Concentrating then on those with equivalent offshore hedge funds, the onshore-offshore comparison shows no significant differences in mean performance and volatility when they use equally-weighted indexes but an offshore outperformance when they do a cross-sectional study. The authors also find a sizable regulation-induced tracking error.

Quantifying Alternative UCITS

Despite having registered significant investor appetite in recent years, empirical research on UCITS compliant hedge funds (“Newcits” or “Alternative UCITS”) is a rare commodity. The major contribution of this paper is therefore to evaluate the performance of publicly regulated Alternative UCITS vehicles in comparison to traditional hedge funds. For the first time, a representative set of data has been analyzed on a period from June 2004 to May 2011. The results shed light on what really matters for investors: regulation, managerial skills and risk. We show that the UCITS regulatory constraints come at a cost to performance and that the impact of regulation differs from one strategy to another. We also find that the performance of Alternative UCITS is positively affected by the skill set of the manager. In particular, hedge fund experience is relevant when managing Alternative UCITS funds.