ucits

While catastrophe bond funds might have similar return expectation metrics, the tail-risk inherent in each cat bond fund strategy can “differ tremendously,” depending on the underlying portfolio construction, a new study from Plenum Investments shows.

We’ve learned that the European Commission has now directed financial regulator the European Securities & Markets Authority (ESMA) to study eligible assets for UCITS investment fund strategies, to ensure their suitability, with catastrophe bonds explicitly mentioned.

Catastrophe bond funds in the UCITS format are rapidly approaching a combined $10 billion of assets under management (AUM), with another $372 million added in just the last two months.

Catastrophe bond funds in the UCITS format are averaging approximately 6.20% returns year-to-date in 2023, while over a 12-month horizon the average return is now 3.57%, even accounting for major hurricane Ian’s losses in Florida.

A particularly strong performance through the month of April 2023 now sees catastrophe bond funds in the UCITS format with an average return for the first four months of the year of 5.50%, with both higher and lower-risk cat bond fund strategies faring particularly well during the period.

For a few weeks now we’ve been hearing rumours and receiving messages from contacts related to the fact the European Securities & Markets Authority (ESMA), a financial regulator, had restarted an exploration of catastrophe bonds and whether they should be an eligible asset for UCITS investment funds.

Catastrophe bond funds in the UCITS format have reported a record start to the year, delivering almost 4% in returns on average in the first-quarter of 2023, according to the latest data from the Plenum CAT Bond UCITS Fund Indices.

Inflows to the catastrophe bond market and recoveries in values of certain cat bond positions through the first-quarter of 2023, have driven the combined assets under management of the main UCITS cat bond fund strategies 7% higher to a new record of $9.37 billion.

The lower-risk group of catastrophe bond funds structured in a UCITS format have now seen their average returns recover back to levels last seen just prior to hurricane Ian, as the cat bond market continues to deliver strong returns in the wake of that storm.

Catastrophe bond returns remain very strong as the higher spread environment continues to deliver in 2023 and as a result the average return across UCITS cat bond fund strategies has now reached 3.07%, at March 17th.