The European Fund and Asset Management Association (Efama) has condemned the use of the term "newcits" and said that alternative Ucits products don't deserve a special label as the current legislation provides sufficient protection, the association said.
In a report about the evolving investment strategies being deployed through Ucits products, Efama said that the advent of Ucits III in 2001 brought about more funds using a broader range of techniques and financial instruments in an effort to manage the trade-off between risk and return.
Due to investor demand for risk reduction and return enhancement, appetite for these types of products increased, particularly since the financial markets crisis. Efama noted: "There is clear investor desire to achieve yield uplift relative to the low returns on deposit accounts. At the same time there is a demand from investors for capital security."
Over the course of its research, the association also examined the reservations and concerns some regulators expressed in the face of what some parts of the media have called "newcits". Efama found that the current Ucits legislation provides a robust framework with strong retail investor protection and is about to be enhanced with the Ucits IV requirements.
"The so-called “newcits” are neither new products nor a new category of funds. “Newcits” are Ucits that can be described as aiming actively to manage the risk-return trade-off. They are subject to and are managed in compliance with the Ucits framework. As such they offer the same level of investor protection as other Ucits," Efama said.
Peter De Proft, director general of Efama, said: “We do not believe that it is necessary or beneficial to have a specific label for these funds. The universe of Ucits is evolving but this is encompassed by the Ucits regulatory framework. Moreover, the regulatory requirements and supervisory tools are being developed, especially under the Ucits IV framework, which comes into force on 1 July 2011."
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