Financial Markets and Portfolio Management

, Volume 31, Issue 1, pp 69–111 | Cite as

Can investors benefit from the performance of alternative UCITS funds?

  • Michael Busack
  • Wolfgang Drobetz
  • Jan TilleEmail author


We study the performance persistence of alternative UCITS funds, which are a hybrid between mutual funds and hedge funds. Persistence is gauged by alternative measures of performance and risk. Based on contingency tables, we find that performance persists for up to 2 years following ranking. However, persistence is stronger in the short run, and ranked portfolio tests indicate that investors can benefit from persistence for only up to 1 year. The evidence for persistence in risk is ambiguous. We link fund characteristics to performance persistence and find that offshore hedge fund experience enhances persistence. Our results are robust against survivorship bias and other potential database biases.


Alternative mutual funds UCITS funds Hedge funds Performance measurement Performance persistence 

JEL Classification

G11 G14 G23 


  1. 2001/108/EC: Directive 2001/108/EC of the European Parliament and of the Council of 21 January 2002 Amending Council Directive 85/611/EEC on the Coordination of Laws, Regulations and Administrative Provisions Relating to Undertakings for Collective Investment in Transferable Securities (UCITS), with Regard to Investments of UCITS. European Parliament and the Council of the European Union (2002)Google Scholar
  2. 85/611/EEC: Council Directive on the Coordination of Laws, Regulations and Administrative Provisions Relating to Undertakings for Collective Investment in Transferable Securities (UCITS). Council of the European Communities (1985)Google Scholar
  3. Ackerman, C., McEnally, R., Ravenscraft, D.: The performance of hedge funds: risk, return, and incentives. J. Financ. 54, 833–874 (1999)CrossRefGoogle Scholar
  4. Adcock, C., Areal, N., Armada, M. R., Ceu Cortez, M., Oliveira, B., Silva, F.: New tests of correlation and the choice of measures of portfolio performance. Working Paper (2014)Google Scholar
  5. Agarwal, V., Naik, N.Y.: Multi-period performance persistence analysis of hedge funds. J. Financ. Quant. Anal. 35, 327–342 (2000)CrossRefGoogle Scholar
  6. Agarwal, V., Boyson, N.M., Naik, N.Y.: Hedge funds for retail investors? An examination of hedged mutual funds. J. Financ. Quant. Anal. 44, 273–305 (2009)CrossRefGoogle Scholar
  7. Baquero, G., ter Horst, J.R., Verbeek, M.: Survival, look-ahead bias and the persistence in hedge fund performance. J. Financ. Quant. Anal. 40, 493–517 (2005)CrossRefGoogle Scholar
  8. Bekaert, G., Harvey, C.R.: Time-varying world market integration. J. Financ. 50, 403–444 (1995)CrossRefGoogle Scholar
  9. Bessler, W., Drobetz, W., Zimmermann, H.: Conditional performance evaluation for German equity mutual funds. Eur. J. Financ. 15, 287–316 (2009)CrossRefGoogle Scholar
  10. Blake, D., Timmermann, A.: Mutual fund performance: evidence from the UK. Eur. Financ. Rev. 2, 57–77 (1998)CrossRefGoogle Scholar
  11. Bollen, N.P.B., Busse, J.A.: Short-term persistence in mutual fund performance. Rev. Financ. Stud. 18, 569–597 (2004)CrossRefGoogle Scholar
  12. Boyson, N.M.: Hedge fund performance persistence: a new approach. Financ. Anal. J. 64, 27–44 (2008)CrossRefGoogle Scholar
  13. Brown, S.J., Goetzmann, W.N.: Performance persistence. J. Financ. 50, 679–698 (1995)CrossRefGoogle Scholar
  14. Brown, S.J., Goetzmann, W.N., Ibbotson, R.G.: Survivorship bias in performance studies. Rev. Financ. Stud. 5, 553–580 (1992)CrossRefGoogle Scholar
  15. Brown, S.J., Goetzmann, W.N., Ibbotson, R.G.: Offshore hedge funds: survival and performance, 1989–95. J. Bus. 72, 91–118 (1999)CrossRefGoogle Scholar
  16. Busack, M., Drobetz, W., Tille, J.: Do alternative UCITS deliver what they promise? A comparison of alternative UCITS and hedge funds. Appl. Financ. Econ. 24, 949–965 (2014)CrossRefGoogle Scholar
  17. Carhart, M.M.: On persistence in mutual fund performance. J. Financ. 52, 57–82 (1997)CrossRefGoogle Scholar
  18. Carpenter, J.N., Lynch, A.W.: Survivorship bias and attrition effects in measures of performance persistence. J. Financ. Econ. 54, 337–374 (1999)CrossRefGoogle Scholar
  19. Chevalier, J., Ellison, G.: Risk taking by mutual funds as a response to incentives. J. Political Econ. 105, 1167–1200 (1997)CrossRefGoogle Scholar
  20. Christensen, R.: Log-Linear Models. Springer, New York (1990)CrossRefGoogle Scholar
  21. Cogneau, P., Hübner, G.: The 101 ways to measure portfolio performance. SSRN Working Paper (2009)Google Scholar
  22. Cortez, M.C., Paxson, D., Armada, M.J.: Persistence in Portuguese mutual fund performance. Eur. J. Financ. 5, 342–365 (1999)CrossRefGoogle Scholar
  23. Cortez, M.C., Silva, F., Areal, N.: The performance of European socially responsible funds. J. Bus. Ethics 87, 573–588 (2009)CrossRefGoogle Scholar
  24. Dahlquist, M., Engström, S., Söderlind, P.: Performance and characteristics of Swedish mutual funds. J. Financ. Quant. Anal. 35, 409–423 (2000)CrossRefGoogle Scholar
  25. Dewaele, B., Markov, I., Pirotte, H., Tuchschmid, N.: Does manager offshore experience count in the alternative UCITS universe? J. Altern. Invest. 16, 72–85 (2013)CrossRefGoogle Scholar
  26. Dugan, I.J.: Sharpe point: risk gauge is misused. Heard on the street. Wall Str. J., August 31 (2005)Google Scholar
  27. Edwards, F.R., Caglayan, M.O.: Hedge fund performance and manager skill. J. Futures Mark. 21, 1003–1028 (2001)CrossRefGoogle Scholar
  28. Eling, M.: Does the measure matter in the mutual fund industry? Financ. Anal. J. 64, 54–66 (2008)CrossRefGoogle Scholar
  29. Eling, M., Schuhmacher, F.: Performance-Maße für Hedgefonds-Indizes – wie geeignet ist die Sharpe-Ratio? Absolut|report 29, 36–41 (2005)Google Scholar
  30. Eling, M., Schuhmacher, F.: Does the choice of performance measure influence the evaluation of hedge funds? J. Bank. Financ. 31, 2632–2647 (2007)CrossRefGoogle Scholar
  31. Elton, E., Gruber, M.J., Blake, C.: Survivorship bias and mutual fund performance. Rev. Financ. Stud. 9, 1097–1120 (1996)CrossRefGoogle Scholar
  32. European Fund and Asset Management Association: Quarterly Statistical Report Q2 2014.
  33. Evans, R.: Mutual fund incubation. J. Financ. 65, 1581–1611 (2010)CrossRefGoogle Scholar
  34. Fama, E.F., French, K.R.: Size, value and momentum in international stock returns. J. Financ. Econ. 105, 457–472 (2012)CrossRefGoogle Scholar
  35. Ferreira, M.A., Keswani, A., Miguel, A.F., Ramos, S.B.: The determinants of mutual fund performance: a cross-country study. Rev. Financ. 17, 483–525 (2013)CrossRefGoogle Scholar
  36. Fung, W., Hsieh, D.A.: Performance characteristics of hedge funds and commodity funds: natural vs. spurious biases. J. Financ. Quant. Anal. 35, 291–307 (2000)CrossRefGoogle Scholar
  37. Fung, W., Hsieh, D.A.: The risk in hedge fund strategies: theory and evidence from trend followers. Rev. Financ. Stud. 14, 313–341 (2001)CrossRefGoogle Scholar
  38. Fung, W., Hsieh, D.A.: Hedge fund benchmarks: a risk-based approach. Financ. Anal. J. 60, 65–80 (2004)CrossRefGoogle Scholar
  39. Getmansky, M.: The life cycle of hedge funds: fund flows, size, competition, and performance. Q. J. Financ. 2, 1–53 (2012)CrossRefGoogle Scholar
  40. Getmansky, M., Lo, A.W., Makarov, I.: An econometric model of serial correlation and illiquidity in hedge fund returns. J. Financ. Econ. 74, 529–609 (2004)CrossRefGoogle Scholar
  41. Gruber, M.J.: Another puzzle: the growth in actively managed mutual funds. J. Financ. 51, 783–810 (1996)CrossRefGoogle Scholar
  42. Hendricks, D., Patel, J., Zeckhauser, R.: Hot hands in mutual funds: short-run persistence of relative performance, 1974–1988. J. Financ. 48, 93–130 (1993)CrossRefGoogle Scholar
  43. Herzberg, M.M., Mozes, H.A.: The persistence of hedge fund risk: evidence and implications for investors. J. Altern. Invest. 6, 22–42 (2003)CrossRefGoogle Scholar
  44. Irish Funds Industry Association: Monthly Statistics Factsheet. December (2013)Google Scholar
  45. Israelsen, C.: A refinement to the Sharpe ratio and information ratio. J. Asset Manag. 5, 423–427 (2005)CrossRefGoogle Scholar
  46. Jagannathan, R., Malakhov, A., Novikov, D.: Do hot hands exist among hedge fund managers? An empirical evaluation. J. Financ. 65, 217–255 (2010)CrossRefGoogle Scholar
  47. Kat, H.M., Menexe, F.: Persistence in hedge fund performance: the true value of a track record. J. Altern. Invest. 5, 66–72 (2003)CrossRefGoogle Scholar
  48. Keating, C., Shadwick, W.F.: A universal performance measure. J. Perform. Meas. 6, 59–84 (2002)Google Scholar
  49. Kosowski, R., Timmermann, A., Wermers, R., White, H.: Can mutual fund ‘stars’ really pick stocks? New evidence from a bootstrap analysis. J. Financ. 61, 2551–2596 (2006)CrossRefGoogle Scholar
  50. Kosowski, R., Naik, N.Y., Teo, M.: Do hedge funds deliver alpha? A Bayesian and bootstrap analysis. J. Financ. Econ. 84, 229–264 (2007)CrossRefGoogle Scholar
  51. Malkiel, B.G.: Returns from investing in equity mutual funds 1971 to 1991. J. Financ. 50(1995), 549–572 (1995)CrossRefGoogle Scholar
  52. Malkiel, B.G., Saha, A.: Hedge funds: risk and return. Financ. Anal. J. 61, 80–88 (2005)CrossRefGoogle Scholar
  53. Newey, W.K., West, K.D.: A simple, positive semi-definite, heteroskedasticity and auto-correlation consistent covariance matrix. Econometrica 55, 703–708 (1987)CrossRefGoogle Scholar
  54. Ornelas, J.R.H., Silva Jr., A.F., Fernandes, J.L.B.: Yes, the choice of performance measure does matter for ranking US mutual funds. Int. J. Financ. Econ. 17, 61–72 (2012)CrossRefGoogle Scholar
  55. Otten, R., Bams, D.: European mutual fund performance. Eur. Financ. Manag. 8, 75–101 (2002)CrossRefGoogle Scholar
  56. Sharpe, W.F.: Mutual fund performance, part 2: supplement on security prices. J. Bus. 39, 119–138 (1966)CrossRefGoogle Scholar
  57. Shukla, R., Trzcinka, C.: Persistent performance in the mutual fund market: tests with funds and investment advisers. Rev. Quant. Financ. Account. 4, 115–135 (1994)CrossRefGoogle Scholar
  58. Silva, F., Cortez, M.C., Armada, J.M.: Conditioning information and European bond fund performance. Eur. Financ. Manag. 9, 201–230 (2003)CrossRefGoogle Scholar
  59. Simmonds, N.: UCITS—a roadmap for hedge fund managers (2011). Available at
  60. Ter Horst, J.R., Nijman, T.E., Verbeek, M.: Eliminating look-ahead bias in evaluating persistence in mutual fund performance. J. Empir. Financ. 8, 345–373 (2001)CrossRefGoogle Scholar
  61. Tuchschmid, N.S., Wallerstein, E.: UCITS: can they bring funds of hedge funds on-shore? J. Wealth Manag. 15, 94–109 (2013)CrossRefGoogle Scholar
  62. Tuchschmid, N.S., Wallerstein, E., Zanolin, L.: Will alternative UCITS ever be loved enough to replace hedge funds? Working Paper, HEG Geneva (2010)Google Scholar
  63. Young, T.W.: Calmar ratio: a smoother tool. Futures 20, 40 (1991)Google Scholar
  64. Zakamouline, V.: The performance measure you choose influences the evaluation of hedge funds. J. Perform. Meas. 15, 48–64 (2011)Google Scholar

Copyright information

© Swiss Society for Financial Market Research 2017

Authors and Affiliations

  1. 1.Absolut Research GmbHHamburgGermany
  2. 2.Faculty of Business AdministrationHamburg UniversityHamburgGermany

Personalised recommendations