None of the information provided is investment or tax advice. You should always read the associated risks before deciding whether to invest. These can be found on the product pages as well as in our risks overview. Please confirm you have read the information above.
Downing launches new actively managed liquid alternatives fund aiming to deliver 7% to 10%+ per annum and positive returns in most markets. The new MGTS Downing Active Defined Return Assets Fund (‘Active Defined Returns’, the ‘Fund’), is the first fund from its new Liquid Alternatives team.
The Fund is aimed at institutional investors, Discretionary Fund Managers, IFAs and advised sophisticated individual investors, and will primarily consist of UK Government bonds and large-cap equity index options, which provide significant scalability and strong liquidity. It aims to deliver 7% to 10%+ per annum and positive returns in all markets except for a sustained equity market fall (generally more than 35%), over a period of at least six years.
The Fund is the first to be launched by the new Liquid Alternatives Team established by Downing. Collectively, the team has over 125 years of experience and sector knowledge, and includes Tony Stenning, who held senior roles at BlackRock and most recently was CEO of Atlantic House Group; Russell Catley, founder and also a former CEO of Atlantic House Group; Huw Price, a former Executive Director at Santander Asset Management, and Paul Adams, former Head of Cash Equities and Derivatives Sales, Royal Bank of Canada.
The Fund offers investors a compelling building block for multi-asset portfolios, aiming to add consistent and predictable returns, typically secured with a portfolio of UK Government bonds. The unique proposition includes a hybrid approach of using systematic derivative strategies and active management, combining liquid investments with predictable returns, and an equity like risk profile.
Investment strategy: Maximising the probability of delivering predictable defined returns across the economic cycle.
Systematic Liquid Derivatives: Systematic, derivative strategies optimise the equity risk-return profile. The Fund uses rules-based derivative strategies linked to the most liquid, large-cap global equity indices (i.e. FTSE100, S&P500) with the aim of harvesting well-proven consistent returns across a wide corridor of market conditions.
Strong security: The Fund will hold a high-quality portfolio of assets as secure collateral – typically UK Government bonds.
Active benefits: At times, rules-based, passive derivative strategies can underperform when markets move strongly – this is when specialist active management can add incremental gains by monitoring and monetising positions and applying active risk management.
Key benefits
Increased consistency and predictability of returns: Positive returns in all markets except for a sustained equity market fall of more than 35% over at least six years.
Diversification of risk: The Fund’s risk components are diversified across large, liquid equity indices, observation levels and counterparties. Secured with high-quality assets – typically UK Government bonds.
Active management: Our experienced team will actively manage the Fund and its investments to optimise risk and reward for investors.
Russell Catley, Head of Retail, Liquid Alternatives at Downing, said: “Put simply, we focus your investment risk on the probability of receiving the returns you need, not those you don’t. We target the highest probability of delivering 7% to 10%+ per annum with active management adding material incremental gains. We believe that we are building the next evolution of the proven success of Defined Returns funds
The Downing team isseeing strong demand from clients looking for alternatives to large-cap equity funds which are becoming concentrated in technology stocks, or alternatives to UK equity income funds and illiquid alternatives.”
Tony Stenning, Head of Liquid Alternatives at Downing, said: “The launch of our Active Defined Return Assets Fund is a significant milestone in the ambitious build-out of our new Liquid Alternatives strategies. It is a solution-focused fund that should deliver stable high single or low double-digit returns across a wide spectrum of equity market conditions, except for a persistent multi-year bear market. The Fund is designed to enhance balanced portfolios by providing consistent, predictable returns and is suitable for accumulation or drawdown.
“We aim to deliver a unique combination of proven systematic derivative strategies and specialist active management, and we are doing so at a very compelling fee level, below our closest competitors and in line with active ETFs.”
How the Fund is expected to perform in different markets
In bullish markets: UK Government bonds secure the capital, and the equity index options deliver a predictable 7-10%+ return per annum – giving up some less likely upside.
In neutral markets and normal market corrections: UK Government bonds secure the capital, and the index options deliver a predictable 7-10%+ return per annum.
In a sustained sell-off: if markets fall more than the cover to capital loss and do not recover for six years. Then capital is eroded 1:1 in line with the worst performing index.
The average Cover to Capital Loss is targeted at 35%: the average cover to capital loss represents the average level the Global indices within the Fund could fall before capital is at risk.
Fund key risks
Performance: Capital is at risk. Investors may not get back the full amount invested.
Liquidity: Access to capital is always subject to liquidity.
Counterparty risk: Other parties could default on the contractual obligations.
Fund Structure
UK regulated OEIC fund structure, fully UCITS compliant
Daily dealing, at published NAV
Minimum investment: £100,000
SRRI: 6 out of 7
Depositary: Bank of New York
Authorised corporate Director (‘ACD’): Margetts Fund Management Ltd.
I share-class: SEDOL: BM8J604 / ISIN: GB00BM8J6044
F share-class: SEDOL: BM8J615 / ISIN: GB00BM8J6150
Risk warning: Opinions expressed represent the views of the fund manager at the time of publication, are subject to change, and should not be interpreted as investment advice. Please refer to the latest full Prospectus and KIID before investing; your attention is drawn to the risk, fees and taxation factors contained therein. Please note that past performance is not a reliable indicator of future results. Capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in this fund should be held for the long term.
Important notice: This document is intended for professional investors and has been approved as a financial promotion in line with Section 21 of the FSMA by Downing LLP (“Downing”). This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 10 Lower Thames Street, London EC3R 6AF.
Producing clean and green energy has come into sharp focus in recent times. It’s seen as the cornerstone of the successful transition from fossil fuels. The UK is lucky to have the capability of generating solar, hydro and wind energy, and this mix of technology is vital for ensuring our transition to net zero.
But, for something so important, the answers to some key questions are not commonly known. Is it sunny enough in the UK for solar? How do you turn water into energy? Will wind turbines impact wider landscapes? In a series of informative articles, we unpack the main steps for constructing solar, hydro and wind facilities. First up, we explore the construction process for a solar farm.
The power of solar in the UK:
Despite the popular view that the UK’s weather is mostly grey, we have more than enough sunlight to power solar panels.
We can generate electricity from solar panels when sunlight reacts with the silicon crystals in the panel to produce an electric current. This current can then be fed into the National Grid.
As of the end of September 2021, there were 1.1 million individual solar generators across the UK. Collectively, this equates to 13,587 MW. To put this into perspective, 1MW can power around 2000 homes for an hour.
As well as large-scale farms, solar panels can be found on commercial properties and ordinary homes. Below is an outline of the main stages of creating a solar farm.
Stage 1: Location, land acquisition and grid application
Using land surveys, developers will identify a suitable location to place ground-mounted solar panels. This is vital, not just for the efficiency of the technology, but to ensure minimal impact on the land the panels are placed in.
At the very least, the sites need to be big enough to accommodate a solar farm and are close to existing electrical grid systems. On average, solar farms cover five acres and consist of approximately 5,000 panels. A facility of this size can produce over one million watts at any given moment (high noon on a sunny day). These figures can vary depending on the size and wattage of the panels.
As part of stage 1, the developers will need to determine the effect of adding more solar power to the local grid.
Gaining site control and gathering sufficient regulatory permits for construction can be a lengthy process and can take the majority of the construction cycle.
Stage 2A: Solar park construction
In this stage, engineering, procurement and construction (EPC) firms will start building the solar site. Over a number of months, the contractor will prepare the ground, arrange facilities required for day-to-day work, remove large obstacles, put in storm controls, and place the solar panels.
In the wider context of things, the process of placing the panels and digging trenches for underground wiring is relatively swift. Crews can typically install 800-900 panels per day, meaning construction can take around four to six months.
Stage 2B: Connecting to the grid
After a few months, the site will start to resemble a fully functioning solar farm. The next step is creating the infrastructure to connect to the national grid.
The majority of the interconnection work will happen during construction. But the “connection” stage includes:
- Installing electricity poles
- Upgrading the substation or even building a new one.
Stage 3: Testing and commissioning
Once everything is connected, the solar park will enter testing stage before going live. Should the testing be satisfactory, maintenance procedures will need to be considered.
Anything that could block the solar panels, such as weeds and grass, need to be controlled. You can read how sheep are contributing to the maintenance of solar panels in one of our other articles.
It is also important to engage a preventative approach to maintenance. Whether that is monitoring transformers, cells, wiring, risk of vandalism or even the weather. Preparing, rather than repairing, ensures the solar plant will operate efficiently for longer.
If the tests are passed and you have preventative maintenance procedures in place, the solar farm can start harvesting clean, renewable energy.
While solar farms are incredibly important to creating clean energy, ensuring a balanced mix of renewable energy generation is key to our journey towards net zero. In the next article, we will explore the process of creating a hydropower dam.
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