Journal of Investment Strategies

Risk.net

Creating factor clusters in the alternative Undertakings for Collective Investment in Transferable Securities (UCITS) universe

Pierre Trecourt, Florian Peres and Sameer Singh

  • Implementation of a quantitative framework providing a unique perspective into the diversity of risk profiles of Alternative UCITS funds.
  • Factor-based fund clustering into seven heterogenous, predominantly long risk clusters, neutral clusters and short or hedging cluster.
  • 70% of the variance of the universe captured by the factor model represented by the 47 Pure Factors.
  • Investors can gain additional insights on their current or prospective Alternative UCITS holdings by observing performance in the context of the relevant cluster.

After years of expansion, the alternative Undertakings for Collective Investment in Transferable Securities (UCITS) market experienced wide fluctuations in performance during the Covid-19 market crisis. Using a novel quantitative process that utilizes Premialab Pure Factors, we identify seven clusters within a universe of 323 alternative UCITS based on their performance and factor characteristics. Investors can gain additional insights into their current or prospective alternative UCITS holdings by observing their performance in the context of the relevant cluster.

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