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UCITS research paper finds no conclusive evidence of outperformance in less-regulated funds

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Erik Wallerstein and Nils S.

Erik Wallerstein and Nils S. Tuchschmid (pictured) from the Haute Ecole de Gestion in Geneva has found no conclusive evidence of outperformance in traditional hedge funds versus their regulated counterparts. Entitled “Will Alternative UCITS ever be loved enough to replace hedge funds?” it is one of the first-ever studies to evaluate performance between the two fund groups. As well as concluding that mean returns over a sample period – Jan 2006 to May 2010 – were similar, the study, which used a database of 522 funds, also found that the level of risk employed by UCITS funds was three to four times lower than for hedgies. On a risk-adjusted basis, the study found that alpha was only slightly lower for UCITS on an annualized basis; 2.6 per cent versus 2.9 per cent for traditional hedge funds. Speaking with Hedgeweek, Wallerstein said: “What will become more clear in the future will be which strategies work best in UCITS but we need more time to ascertain this.” Wallerstein said that three groups of UCITS with the largest sample size were chosen to evaluate performance: Equity L/S, Global Macro and Fixed Income. “We compared their mean returns to traditional hedge funds over the sample period and found they were quite similar,” explained Wallerstein. The biggest surprise was Fixed Income UCITS having significantly outperformed hedgies; +2.47 per cent versus -11.97 per cent. Although Wallerstein points out that removing outliers raised this figure to -0.14 per cent. “Next we’d like to look at performance between UCITS and their corresponding offshore cousins, which we hope to do before year-end using a longer sample period,” added Wallerstein.

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