UCITS vs Mutual Funds
Mutual Funds That Behave Like Hedge Funds: UCITS III and UCITS IV
NEWCITS are the US version of European UCITS
UCITS III and UCITS IV: Undertakings for Collective Investments in Transferable Securities
More and more retail investment managers are adopting hedge-fund style investment strategies to improve the risk and return of their products. This has only recently been allowed in Europe for ordinary “retail” investors. There are now a lot of new “Absolute Return” funds, but many other funds also use similar techniques or use derivative for other strategies.
UCITS or the Undertakings for Collective Investments in Transferable Securities are managed funds (e.g. mutual funds, unit trusts, OEICs etc.) sold to retail investors in the European Community. UCITS III is the latest directive dating back to 2001 that controls the use of derivatives in these investments. Since then, managed funds sold to retail investors have been allowed to use derivative (options, warrants etc.) to implement strategies similar to those employed by Hedge Funds. So, rather than having “long-only” funds it is possible to make money when the market falls by shorting the market using derivatives (direct shorting of shares is not allowed) or to apply leverage to increase exposure to the market.
UCITS regulation dates back to the 1985, with the first UCITS European Directive: UCITS I, the current, UCITS III has been in force for several years and the new revised UCITS IV is due to be announced in about June 2010
