How is the 5-10-40 Rule Applied and are there any exceptions to the Rule

Thursday August 4 2011

Rule

The general 5/10/40 rule requires that no more than 10% of a UCITS net assets may be invested in transferable securities or money market instruments issued by the same body, with a further aggregate limitation of 40% of net assets on exposures of greater than 5% to single issuers.

Exceptions to the 5/10/40 Rule

There are exceptions to the above for investments issued or guaranteed by governments, local authorities or certain public international or supra-national bodies;

Index replicators can take exposures up to 20% of net assets to single issuers, with up to 35% to a single issuer in exceptional market conditions;

Up to 100% of net assets can be invested in other collective investment schemes (CIS), provided no more than 20% invested in any one CIS, with an aggregate restriction of 30% of net assets applying to investment in non-UCITS CIS as well as strict rules applying to the nature of CIS in which a UCITS can invest, as well as limiting investment to a maximum of 25% of the units of the underlying CIS; and

Up to 20% of Net Assets can be invested in Deposits depending on the type of institution the deposits are held with.