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.
Fund Managers Pras and Mike feature in Investment Week: Deep Dive
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Downing
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.
‘EU taking the lead on net-zero path’
What connects a graphite mine in Northern Sweden, a small German engineering company that specialises in electric motors, and a Nordic wind turbine installation company? All are set to benefit from the tectonic shifts brought about by the global energy transition, but few will be well known to investors.
As the global race to net zero gathers pace, all eyes are on Europe as the model for a sustainable future. The region leads the world in adopting climate policy, integrating renewable energy and the shift to electric vehicles. The European Union is the first major economy in the world to set out a detailed roadmap for how to reach net-zero emissions. Long seen as a slow-moving economy burdened by politics and bureaucracy, the continent is now setting the pace in one of big issues of our time – the path to carbon neutrality.
As Europe embarks on its ambitious quest to be climate neutral by 2050, entire industries and value chains are being redrawn. Europe is seeing world class renewables companies springing up and entire value chains devoted to supporting the fast-growing EV sector. If the UK’s petrol shortage is anything to go by, EVs could be the norm sooner than ever imagined. But for this to happen, an enormous supply chain needs to be built. By 2030, more than 30 gigafactories are expected to come online across Europe as the industry ramps up to meet the surging demand for batteries.
Volkswagen alone is planning to build six huge battery factories as it aggressively pivots away from the internal combustion engine. Lithium, cobalt, manganese, graphite and a raft of other materials are critical in this transition. The black powder of rare metals coming from end-of-life batteries looks set to usurp oil as the black gold that will power economies in the decades to come.
The geopolitics of this transition will feature a new type of global competition, one centred around access to renewable technologies and rare resources. With China dominating the production and processing of many of these upstream materials, supply chains are potentially vulnerable. Some of these metals can be sourced from outside China but the economic viability is often unsure and can come with its own ESG concerns. For example, lithium production is concentrated in some of the driest areas in the world, and there have been concerns around water stress and environmental damage. The largest reserves of cobalt are in the Democratic Republic of Congo where investigations have uncovered human rights abuses and the use of child labour in the supply chains. With demand for electric vehicles ramping up, the EU needs to develop alternative supplies and localise supply chains. This, we believe, could be a great opportunity for investors willing to hunt up and down value chains to find the pinch points.
The flurry of thematic fund launches, huge flow of assets and punchy valuations (many of which have since corrected this year) suggests crowded positioning among investors. The opportunity is clearly large, but so is the valuation risk in what is still a nascent market.
It also raises countless ESG challenges. An apparently clean play on EV batteries could be muddied down the supply chain depending on where and how its raw materials are sourced. Unpicking these conflicts is tricky, but one suited to genuine active management and company engagement.
What connects the Swedish graphite mine, the German electric motor play and the Nordic offshore wind installation company? All are in the sweet spot of capturing the opportunity but so far have been off the radar of many investors. For those prepared to look more widely, this is where we feel the best opportunities currently can be found in Europe.
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 and are higher risk compared to investments solely in larger, more established companies.
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