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In conversation with Rosemary Banyard - Fund Manager
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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.
Rosemary Banyard joined Downing Fund Managers in March 2020 to launch and manage the VT Downing Unique Opportunities Fund.
In constructing the fund, Rosemary aims to bring together every bit of experience, knowledge and insight she has gained in her many years of researching and investing in UK small and mid-cap companies.
Best known for running both Schroder UK Smaller Companies and Schroder Mid Cap funds alongside Andy Brough for almost 20 years, she joined Sanford DeLand in 2016 to launch the CFP Free Spirit Fund.
We look at how Rosemary’s investment approach has evolved, what she’s searching for in an investment, and how she tries to take advantage of ‘unique opportunities’.
An evolved process
The VT Downing Unique Opportunities Fund invests in UK companies with market capitalisations between approximately £150 million and £10 billion at the time Rosemary initially buys the shares. This means she holds no micro-caps or mega-caps.
“Downing is a great fit for me because the company has extensive experience in both micro-cap and income investing, and my target range of businesses essentially starts where the micro-cap team leaves off in terms of scale,” she says.
“I believe I have honed my investment philosophy and process over many years and this fund is the culmination of that evolution. For example, my portfolio has become more concentrated and this fund aims to invest in between 25 to 40 stocks. I have also found myself increasingly drawn to companies with more predictable and consistent growth rates because they can be valued more easily.”
Unique opportunities
What exactly is a ‘unique opportunity’? For Rosemary it’s a company that has an above average return on equity.
“If a company is earning a superior return on equity, it usually means it has got something special to it,” she says.
“To use the ‘economic moat’ term that Warren Buffet coined back in 1986, I look for companies with one or more barriers around them, defences that are difficult to breach and that protect them against competition.”
“Once I have found a company with a strong and sustainable competitive advantage, I then try to invest in it either at, or below, its intrinsic value.”
In the UK there are not many companies with these qualities whose shares are good value. Rosemary’s mission is to find those ‘unique opportunities’ that are.
Freedom from benchmarks
As a bottom-up stock picker, Rosemary doesn’t refer to benchmarks when she is looking to buy businesses or put together a portfolio. This unconstrained approach reflects the fund’s goal of delivering long-term returns ahead of its rivals, rather than following the herd.
“It’s a deliberately focused portfolio,” she says. “Theoretically, I can invest across the board, but in practice I have an aversion to certain sectors.”
“For me, investing is about focusing first on the fundamentals of the business and how it makes money, then trying to find the opportunity to invest at the right price.”
This leads Rosemary to adopt a long-term approach to investing. Across her latest funds to date, the annual stock turnover has been approximately 15% p.a., with an average holding period of five to six years.
The outcome of the evolution of Rosemary’s process is the VT Downing Unique Opportunities Fund: an independently constructed, high conviction fund whose objective is long-term capital and income growth for investors.
For more information about the VT Downing Unique Opportunities Fund:
This is for information only and does not constitute an offer or invitation to apply for shares in the fund. Any subscription to the fund should be made on the basis of the relevant product literature available from Downing. Please pay particular attention to the charges and risk factors. Any personal opinions expressed are subject to change and should not be interpreted as advice or a recommendation. Capital is at risk and investors should note that their investments and the income derived from them can fall as well as rise, and investors may not get back the full amount they invested. Investments in smaller companies will normally involve greater risk or volatility than investments in larger, more established companies.
Downing is authorised and regulated by the Financial Conduct Authority (Firm Registration No. 545025). Registered in England No. OC341575. Registered Office: St Magnus House, 3 Lower Thames Street, London EC3R 6HD.
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