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Advisers urged to take care on Ucits III

Collins Stewart’s multi-manager team has warned advisers they should not invest in Ucits III funds just because they are an extension of long-only portfolios.

Speaking at Money Marketing’s Fund of Funds invitational in London last week, Collins Stewart investment directors Mark Piper and Justin Oliver told advisers that not every long-only manager can make the transition to the sophisticated Ucits III sector, which allows managers to go short using derivatives.

Oliver told delegates that extensive due diligence is needed, as simply choosing a fund that invests in alternative asset classes does not mean it will perform as expected. He said advisers should be clear about their expectations for returns and performance, while considering issues such as liquidity and whether the portfolios are geared. Asking questions about how the back-office systems work, who is in charge of compliance risk models and whether the fund managers have any influence over this process could also help advisers choose the right fund.

According to Oliver, advisers should not expect alternative assets to always be the best-performing asset class and assessing the performance depends on how a fund is blended with other funds and how it is used in a portfolio. For example, a Ucits III fund may outperform traditional equity funds but would this would not mean it performed well if it was being used to produce positive returns as a proxy for cash.

He said: “We need to provide a consistent measure to see if the fund is doing a good job. Individually, very few managers can outperform both on the upside and the downside. But if you get the blend right, the portfolio can outperform and you can continue to add value even if market conditions change.”


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