What is the rule for UCITS cash diversification?
No single asset can represent more than 10% of the fund's assets; holdings of more than 5% cannot in aggregate exceed 40% of the fund's assets. This is known as the "5/10/40" rule.
Liquidity A UCITS must be able to offer redemptions at least twice a month, i.e. fortnightly. A 10% fund level gate is permitted. Redemption proceeds to be received within 14 calendar days/10 business days of the redemption deadline.
Question 4a [last update 21 November 2016] Q&A 949: Pursuant to Article 56(2)(c) of the UCITS Directive, a UCITS may acquire no more than 25% of the units of any single UCITS or other collective investment undertaking.
The “5/10/40” rule is no longer applicable in these situations. Also, the 20% limit may be raised to 35% for a single issuer within the index in exceptional circ*mstances. UCITS may also gain exposure to a financial index through the use of financial derivative instruments (“FDI”).
This has been enshrined in what is commonly known as the 5/10/40 rule which is that a UCITS may invest no more than 10% of its net assets in transferable securities or money market instruments issued by the same body, provided that the total value of transferable securities or money market instruments held in issuing ...
In such a case, the UCITS shall hold securities from at least six different issues, but securities from any single issue shall not account for more than 30% of the total assets of the UCITS.
If a UCITS invests in a category of assets that is not foreseen in its investment policy, the provisions of Circular CSSF 02/77 apply. The 20% limit applicable to deposits must be applied to ancillary liquid assets since they are limited to deposits at sight with banks.
At the 5% limit, the fund would require a minimum of 20 stocks (or other transferable asset) in the portfolio. If the limit is raised to 10% as per bullet point #2, 4 stocks can be held with a weighting of 10% as they do not exceed the 40% limit as per bullet point #3.
Understanding SICAV
Most funds follow UCITS law enacted in 2009 by the European Commission to create a harmonized regime throughout Europe for the management and sale of mutual funds. Some SICAVs may follow SIF law enacted in February 2007 primarily for institutional investors.
A UCITS must invest its funds in transferable securities and other liquid assets. This includes transferable securities admitted or dealt on a regulated market, investment funds, financial derivative instruments, cash and specific money market instruments. Uncovered short sales and borrowings are not permitted.
What is Article 52 of the UCITS Directive?
Question: Article 52(1)(b) of the UCITS Directive requires a UCITS not to invest more than 20% of its assets in deposits made with the same body.
Regulation 71(1) (iii) of the UCITS Regulations requires that the financial index is published in an appropriate manner. An investor should be able to access relevant material information on the financial index with ease, for example, via the internet.
Exposure to credit institutions arising from cash held as ancillary liquidity are included in the individual and group limits for deposits provided for by Regulation 70 of the UCITS Regulations. The limits apply irrespective of whether the accounts are held for investment or ancillary liquidity purposes.
Diversified management investment companies have assets that fall within the 75-5-10 rule. A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of assets in any one company, and no more than 10% ownership of any company's outstanding voting stock.
The so-called Rule of 42 is one example of a philosophy that focuses on a large distribution of holdings, calling for a portfolio to include at least 42 choices while owning only a small amount of most of those choices.
“A UCITS shall ensure that its global exposure relating to derivative instruments does not exceed the total net asset value of its portfolio.” The UCITS may not therefore be leveraged in excess of 100% of net asset value.
The UCITS V Directive (“UCITS V”) amends the regulatory framework for Undertakings for Collective Investment in Transferable Securities (“UCITS”) to address issues relating to the depositary function, manager remuneration and administrative sanctions.
UCITS is a set of voluntary rules which many ETFs follow. ETFs which are UCITS compliant must follow minimum standards - that includes holding a diversified portfolio, publishing clear guidance on their charges and taking steps to safeguard investors' money.
What Is the Difference Between UCITS and Non-UCITS? Non-UTICS funds do not comply with UCITS guidelines. They are likely not open-ended and liquid, one of the more significant requirements for a fund to be UCITS compliant.
U.S. investors, for example, can buy shares of UCITS through U.S.-based fund managers, although local, EU-based money managers run the funds. Because they undergo a high level of regulatory scrutiny, many view UCITS as a relatively safe investment.
Is a UCITS a collective investment scheme?
If a scheme is established and authorised in the United Kingdom and complies with the provisions of the UCITS Directive, it is a UCITS scheme and is capable of being promoted throughout the EEA. However, not all regulated collective investment schemes are UCITS schemes (see ■ COLLG 1A. 1.3 G).
UCITS may not make investments in closed end funds for the purpose of circumventing the investment limits provided for UCITS by the UCITS Directive. 4. Closed end funds in contractual form are eligible where their corporate governance mechanisms are equivalent to those applied to companies generally.
Article 50(2)(a) of the UCITS Directive provides that UCITS may not invest more than 10% of their assets in transferable securities and money market instruments other than those referred to in Article 50(1) of the UCITS Directive.
Paragraph 13 of Notice UCITS 9 limits exposure to OTC derivative counterparties to a maximum of 5% of NAV – to be calculated using the methodology described above. This limit is raised to 10% in the case of credit institutions as defined by paragraph 7 of Notice UCITS 9.
NAV and UCITS valuation
The sale or purchase price for a UCITS fund is determined by the Net Asset Value per share or NAV. NAV is equal to the net assets of the fund divided by the number of shares or units held by investors so pricing and valuation of the assets are clearly important.
