UCITS (Undertakings for Collective Investment in Transferable Securities) funds or ETFs are a category of investment funds regulated by a European Union directive that harmonizes the rules governing collective investment products in the European market. This regulation establishes a series of strict requirements regarding diversification, liquidity, transparency, and oversight, all with the aim of offering greater investor protection.
Characteristics of UCITS funds
Key requirements for UCITS funds include:
- Minimum diversification: to avoid excessive risk concentration.
- Daily liquidity: allowing investors to enter and exit with flexibility.
- Limited use of derivatives: their use is only permitted for hedging or prudent risk management purposes.
- Constant supervision: by the authorities of the country in which the fund is registered.
- Regulated transparency: Funds must provide clear, standardized, and accessible periodic information.
Thanks to these guarantees, UCITS funds have become the most recognized and trusted standard both within and outside Europe. In fact, many institutional investors in Asia, Latin America, and the Middle East also use them for their level of security and professionalism.
UCITS funds in inbestMe
At inbestMe, we exclusively use UCITS funds to build our euro portfolios, whether ETFs or index funds. This allows us to guarantee our clients that they are investing within a robust legal framework, with liquid, diversified products subject to strict supervision. This choice is part of our commitment to transparency, efficiency, and investor protection.
In short, investing through UCITS funds provides an additional layer of trust by offering a regulated, secure, and professional environment. That’s why at inbestMe, we consider them the best foundation for building efficient portfolios aligned with our clients’ interests.
UCITS vs. US ETFs: Why is it relevant for European investors?
US-domiciled ETFs are undoubtedly the most liquid and offer very competitive fees. However, they are not adapted to European regulations or comply with UCITS requirements, which may pose certain limitations for European individual investors:
- They are not marketable to individual investors in Europe due to PRIIPs (Packaged Retail Investment and Insurance Products) regulations, which require standardized documentation (KID or Key Investor Information Documentation, KID), which many US ETFs do not offer. For this reason, individual investors residing in Europe cannot directly purchase US-domiciled ETFs.
- Tax implications: US ETFs are subject to withholding tax on dividends, which in many cases can reduce the tax efficiency of the investment for a European investor. However, if a Spaniard signs the W8 form, this withholding is only 10% on dividends, and the difference in TER and liquidity can offset this.
There are UCITS ETFs—which replicate the same indices as their US counterparts—and which represent an efficient, diversified, and more tax-friendly alternative for euro investors.
At inbestMe, acting as institutional investors, we can include US ETFs in our dollar-denominated ETF portfolios, although in many cases we combine them and sometimes continue to opt for the UCITS version due to its efficiency and regulatory compatibility. When deciding between a US ETF and its UCITS equivalent, it is essential to conduct a thorough cost-benefit analysis: the results are usually very similar. In the case of an Advanced (customized) portfolio, it is possible to adapt it to align it with the client’s particular tax situation.
