This regulation of the European Union allows an open and regulated market for investment funds to exist in its member states. In this way, as stated by the European Securities and Markets Authority (ESMA), these can be traded in all the countries of the union.
With this regulation, fund managers have an instrument that guarantees certain requirements, such as portfolio diversification or consumer protection. In addition, the standard does not focus only on solvency, but also takes into account other essential variables.
What is the UCITS
It came to light in 1985, in the 1980s, a period in which many of the foundations of the European Union were laid. Its raison d’être was the regulation of investment funds with tax domicile in EU states.
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Until then, each country had its own local regulations, which generated significant legal uncertainty. The objective is that these funds, fulfilling a series of conditions, can be marketed in all member states in a harmonized manner.
UCITS funds and their characteristics
The funds managed under the UCITS regulations are those that comply with the provisions of this regulatory framework and hence their name. This allows them to circulate through the European Union with the same rules for everyone. In addition, they have a series of characteristics that we must know:
- The regulatory norm is very specific, indicating the class of assets in which one can invest, the related investments or their valuation. All this with the main objective of investor protection.
- They invest in fixed and variable income, both public and private, through organized and regulated markets.
- These criteria, which are similar in all of them, allow managers to lower costs and expand their market to the entire European Union.
- Over time, the standard has been expanded and modified to adapt it to a changing and global market.
Advantages and disadvantages of UCITS funds
Let’s see some of its main advantages and disadvantages:
- An essential advantage is the security. As there is a common regulatory framework in the member states, the investor enjoys certain guarantees that did not exist before.
- The information received by the customer is updated and it is issued periodically by the managers, since the standard so provides.
- By having the European market as scope, the investor can take advantage of the advantages that this entails in his securities portfolio. For example, he can invest safely and quickly outside his country, accessing different markets.
- One major drawback is that they work like any mutual fund. That is, depending on the customer’s profile, he could earn or lose money.
- The lack of tax harmonization in the European Union is a problem that affects these funds, which will pay different taxes depending on the country.
- On the other hand, the global risk also affects them, as they can invest in different countries of the European Union.
Interesting data on UCITS funds
Let’s see some interesting data on these regulated funds:
- At the end of May 2021, the assets of the funds reached an all-time high of 20 trillion euros, as published by the European Association of Funds and Managers (EFAMA).
- Investments continue to be, for the most part, in equities, through the Stock Markets. However, fixed income is very close.
- On the other hand, multi-asset funds are becoming increasingly important.
- For their part, the monetary UCITS funds were a refuge value in the crisis caused by the coronavirus.
Example of UCITS funds
There are many UCITS funds that are managed by collective investment institutions (IIC). In addition, in many countries of the union they operate through variable capital investment companies (SICAV). Let’s see some of them:
- 2XIDEAS UCITS. It is an investment fund managed by an IIC based in Luxembourg. Its profitability and risk are medium, as is the recommended investor profile.
- ALGEBRIS UCITS FUNDS PLC. Marketed by ALLFUNDS BANK, SA, it has high profitability and medium risk. It could interest a moderate or medium investor.
- BLACKROCK UCITS FUNDS. Marketed by the American investment management company BlackRock. Its returns and risks vary depending on the type of fund chosen.
- ALLIANZ STIFTUNGSFONDS NACHHALTIGKEIT I2 EUR. Marketed by the German manager Allianz. Its profitability and risk are below average, which implies that it could be of interest to moderate investors.
- BELGRAVIA LUX UCITS. Another UCITS fund based in Luxembourg. Its profitability is high, but its risk has an average value. Interesting for aggressive or medium investors.