In a study of structured products and alternative Ucits ESMA found AUM in alternative Ucits ballooned from €20bn to €85bn between 2007 and 2012 even though average returns between 2006 and 2012 were 3% for a sample of around 600 funds.
Meanwhile, the sale of structured products to retail investors peaked at €250bn in 2007 and in 2012 was down at €110bn, but outstanding assets invested in structured products amounted to around €770 as at the end of 2012.
In an analysis of 2750 products ESMA found average returns for structured plans stood at around 2.5%.
“Over the past few years the sale of complex products to retail investors, generally referred to as ‘retailisation’ has increased in Europe.
Notwithstanding the potential benefits brought by these products, trend linked to retailisation have been closely monitored by securities markets supervisors as it could increase risks for the financial system,” said ESMA.
“From a consumer protection perspective, retail investors may face difficulties in understanding the drivers of risks and returns of complex products. As a result, it might be particularly challenging for investors to make proper investment decisions,” it added.
In a comparison with non-Ucits hedge funds alternative Ucits were found to provide lower returns but expose investors to less volatility and expected losses in downturns.
However, when alternative Ucits were compared with traditional mutual funds the risk-adjusted returns were found to be higher for the latter.
