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UCITS

Understanding Undertaking for Collective Investments in Transferable Securities

 

Undertaking for Collective Investments in Transferable Securities, or UCITS, are a mutual fund product which is regulated by the European Union. This regulatory structure has made UCITS a simple, efficient, and transparent investment vehicle for individuals and institutions who are seeking exposure to European equity markets. Over the last 30 years, UCITS have grown to become one of the most successful financial products developed during the modern era.

 

According to the European Commission, nearly 75% of all small investments in Europe are within some type of UCITS fund. Interest in UCITS funds extends well beyond the European Union, with investors in Asia, South America and North America all participating in this rapidly evolving market.

 

UCITS – A BRIEF HISTORY

ucitsDuring the 1970’s, every nation within Europe regulated mutual funds independently. While this provided regulators with more control over their domestic market, it also created significant hurdles to foreign investment. Some countries restricted their own citizens from investing abroad while other countries forbade foreign investment from entering their economy. For countries which did permit foreign investment, added taxation from international commerce was a heavy price to pay for foreign equity exposure.

 

It was a combination of these investment hurdles which gave rise to modern Undertaking for Collective Investments in Transferable Securities, and in 1985, the first standard fund structure was developed by the European Commission. This original agreement addressed several key points.

 

1. Which securities may be held by UCITS funds?

2. What information must be provided to investors?

3. How can shares be bought and sold?

 

With these three primary issues resolved, fund distributors within the European Union were simply required to notify member state regulators when making a cross border transaction. This was an early step in developing the European Union’s single market for financial products which we see today.

 

While this move was good for fund developers, it was great for individual investors. Prior to the landmark 1985 directive, individual investors were essentially limited to investing within their own country. This enhanced framework allowed investors across Europe to access diversified funds.

 

UCITS – AN EVOLVING INVESTMENT PRODUCT

While the 1985 agreement laid the foundation for the modern UCITS, there have been significant improvements made during the last 30 years.

 

UCITS III

This directive expanded the scope of UCITS and made it possible for UCITS funds to hold collective investment instruments, derivatives, and cash.

 

UCITS IV

Implemented in 2011, UCITS IV update the UCITS III directive to include notifications for procedure, key investor information documentation, an enhanced framework for mergers, the cooperation between Member State supervisory authorities, and a management company passport.

 

UCITS V

In response to the Bernie Madoff scandal within the United States, the UCITS V directive was established to address how deposits are handled, general remuneration principles for fund managers, and the handling of sanctions by regulators.

 

UCITS VI

Started in 2012, the UCITS VI directive has yet to be formalized. The major focus for this forthcoming directive is expected to be the management of eligible assets, how derivative contracts may be held within a fund, and the use of efficient portfolio management techniques by fund managers. As this legislation develops, we will keep you updated. All of these enhancements have made Undertaking for Collective Investments in Transferable Securities funds one of the strongest asset classes within the European Union and the world.

 

WHY YOU SHOULD CONSIDER UCITS FUNDS

There are five reasons which make Undertaking for Collective Investments in Transferable Securities Funds an especially strong investment choice.

 

First, and foremost, is the common standards which these funds are held to. When you invest in a UCITS fund, you are buying a heavily regulated investment vehicle which is held to a strict code of standards. Investors can buy with confidence, knowing that the European Commission has developed – and continues to improve – these investment standards.

 

Second, is the diversification which these funds offer. By their nature, Undertaking for Collective Investments in Transferable Securities funds provide more diversification than individual stocks and bonds. When you buy an Undertaking for Collective Investments in Transferable Securities fund, you are buying a basket of assets which have the potential to appreciate.

 

Third, is the professional management that these funds provide to investors. In simple terms, this means that the UCITS funds holdings and positions are selected and balanced by a fund manager. This investment professionals job is to find the highest potential return for an acceptable level of market risk. This investment professional is watching the markets day and night to find investments which may otherwise be missed.

 

Liquidity is the fourth benefit, as nearly 75% of all small investments in Europe are within Undertaking for Collective Investments in Transferable Securities funds. This large pool of potential buyers and sellers means that UCITS funds should see lower investment costs and a narrower bid-ask spread than when trading less liquid, unregulated, funds. This also means that investment funds are readily available after a sale, with most investors receiving their funds within two to five business days.  

 

Lastly, is the investment choice which is provided by these funds. UCITS funds cover a huge array of investment vehicles, from managed index funds to bond funds for investors seeking dependable income. There are nearly 36,000 funds which are currently traded and new funds coming out weekly.

 

INVESTOR PROTECTIONS

Every investment comes with market risk, but the consumer protections provided by UCITS are some of the strongest in the world.

 

The European Commission has established strict guidelines on the type of assets Undertaking for Collective Investments in Transferable Securities funds may hold. The “5/10/40 rule” for UCITS funds means that no more than 10% of the fund’s assets may be invested in securities from one issuer, and that any investments of more than 5% from a single issuer may not make up more than 40% of the whole portfolio.

 

Fund managers are legally required to be prudent in their investment decisions – meaning that they have an overview of all risks within the market and are positioned to react if the risk/reward balance becomes unstable.

 

Lastly, is the transparent nature of these funds. Fund companies are required to publish documentation of the funds’ assets, holdings, and risk prospectus along with the key investor information documents. These reports are published every six months to ensure investors understand the funds composition, portfolio management activities and performance.

 

UCITS FUNDS AT AIF

At AIF, we believe that an Undertakings for Collective Investment in Transferable Securities (UCITS) fund is the ultimate financial product. UCITS funds provide investors with a simple, transparent, investment vehicle which combines an attractive risk/reward balance and daily settlement. These funds are the new ‘gold standard’ for investors seeking protection, transparency, liquidity and daily valuations.

 

 

DISCOVER OUR UCITS FUNDS:

PAM Alpha Fund

The PAM Alpha Fund (UCITS) enables investors to access a long-standing, successful, and unique U.S. long-short index strategy. This strategy is perfectly suited for today’s volatile equity markets and uses short-term moves within the S&P®500 to provide investors with a truly alpha-enabled strategy.

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Pam Long Only Fund

For investors looking for a long-only approach, the PAM Long Only Fund is a perfect fit. Since 2003, the PAM Long Only fund has used a systematic approach to build and protect capital invested by investors. The PAM Long Only fund is a highly-liquid fund which has demonstrated a low correlation with other benchmark indices.

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CoCo Alpha Bond Fund

The CoCo Alpha Bond Fund provides investors with a diversified basket of bonds which are hand-selected for today’s historically low interest rate environment. This approach combines bottom-up security selection with dynamic sector allocation to produce predictable income for investors.

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