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Do alternative UCITS deliver what they promise? A comparison of alternative UCITS and hedge funds

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  • Michael Busack
  • Wolfgang Drobetz
  • Jan Tille

Abstract

We study the performance of alternative UCITS funds and account for potential survivorship biases in our sample in the best possible manner. Alternative UCITS funds offer similar raw returns but a lower volatility compared to offshore hedge funds. Single-index models show that alternative UCITS funds provide only marginal exposure to variations in hedge fund returns. Multifactor models indicate that the most important risk factors for both alternative UCITS funds and their matched hedge funds strategies are related to stock market risks, but alternative UCITS funds exhibit a lower exposure to these factors than hedge funds. Moreover, we find factor loadings on different risk factors, suggesting that alternative UCITS and hedge funds pursue different strategies. Finally, we assess the degree of the value added for an investor in terms of enhanced diversification benefits by implementing a spanning test and find that both groups are different asset classes with time-varying diversification properties.

Suggested Citation

  • Michael Busack & Wolfgang Drobetz & Jan Tille, 2014. "Do alternative UCITS deliver what they promise? A comparison of alternative UCITS and hedge funds," Applied Financial Economics, Taylor & Francis Journals, vol. 24(14), pages 949-965, July.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:14:p:949-965
    DOI: 10.1080/09603107.2014.916386
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    Cited by:

    1. Silvio John Camilleri & Ritienne Farrugia, 2018. "The Risk-Adjusted Performance of Alternative Investment Funds and UCITS: A Comparative Analysis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(7), pages 1-23, July.
    2. Michael Busack & Wolfgang Drobetz & Jan Tille, 2017. "Can investors benefit from the performance of alternative UCITS funds?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(1), pages 69-111, February.

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