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.
Temper growth expectations. Global equities have delivered exceptional returns over the past decade (~13% real annualised), but high current valuations suggest the next ten years are likely to be far more modest — potentially less than 3% real for a typical global portfolio.
Selective equity positioning can recover lost ground. By tilting away from expensive US large-cap and growth stocks — and towards non-US, small-cap, and value equities — investors can potentially push expected real returns back up towards 5%+. The problem is that many managed portfolios are currently moving in the opposite direction.
The herd is heading the wrong way. The momentum-driven shift towards passive, US-heavy, large-cap products looks attractive in the rear-view mirror but is building up meaningful valuation risk. Investors who don't reposition towards cheaper parts of the market may face a painful reckoning when the trend reverses.
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.
Where will tomorrow’s best returns come from?
We’d all like to know what the future holds, that we can’t is one of life’s great frustrations. But that doesn’t stop us from trying, and it’s in this spirit I wrote this quarter’s letter: What might we expect from financial markets in the coming years?
I’ve used Research Affiliates’ (“RA”) data to help answer this. If you’re serious about financial planning, I’d recommend checking out their website. Filling the gap between clients’ personal considerations and the chaotic world of global markets is hard, but their work is just about the best bridge I’ve come across.
Before we get into that, I need to caveat the living daylights out of this crystal balling session. I’m always quick to remind you that no one can predict the future, and I haven’t changed my mind: Chaos theory rules, and even the most diligent attempts at forecasting are likely to fall victim to the flap of the butterfly’s wings. All you can do is tilt the odds in your favour, rendering it more likely – but not inevitable – you’ll avoid a disaster.
That’s what RA’s tools are good for. They give you a rough idea, based on sensible principles, of what you might expect from different investments over the coming years. But clearly, if 98% of humanity wipes itself out through thermonuclear conflict, for example, their neatly calibrated predictions may fall wide of the mark.
How do they do it?
Their estimates are based on current valuations, which are then matched to historical data to gauge how different assets have performed from similar starting levels in the past. You can then choose whether to adjust those numbers by their best guess at what inflation might do too (roughly 2.5% a year, they estimate). And that’s basically it. There’s no macro-political posturing. No “we think Donald Trump will invade Greenland in June.” And this is sensible, because that’s finger in the air stuff which is usually less helpful than tossing a coin (which may actually be how US foreign policy is decided nowadays).
Source: Morningstar & Research Affiliates, as at March 2026. RA’s interactive tool uses historical data and current valuations to generate hypothetical estimated outcomes and does not recommend securities. Actual outcomes may vary materially and are not guaranteed.
Forecasts, hypothetical estimated outcomes and past performance are not reliable indicators of future performance.
In summary, the global market has smashed it out of the park. A post-inflation return of 12.9% a year is crazy. But in reaching that number, it became more expensive, meaning it probably ‘borrowed’ a lot from the next ten years, and it might have to start paying that back. So, it’s sensible to temper your expectations (or, more importantly, your clients’ expectations). This is disappointing. If your financial plans are built on the hope of repeating these returns, there’s a meaningful risk they’ll fall short.
But wait - I have good news! The world is a big place, and that number hides a multitude of details. It’s heavily swayed by large caps and US equities for a start. These make up most of the global market and have been the best performers but are more expensive for it. If you’re prepared to split ‘global’ into different regions, styles, and market caps, and then pick and choose what you hold, you can raise that return expectation back up to more reasonable levels. Here are some line items to consider:
Source: Morningstar & Research Affiliates, as at March 2026. RA’s interactive tool uses historical data and current valuations to generate hypothetical estimated outcomes and does not recommend securities. Actual outcomes may vary materially and are not guaranteed.
Forecasts, hypothetical estimated outcomes and past performance are not reliable indicators of future performance.
Just by avoiding the US, you’re raising potential returns (because the US looks more expensive than most other markets). Likewise, moving away from large caps towards smaller companies also provides a boost, as does favouring ‘value’ equities over ‘growth’. It would not be too hard, then, to lift your expected real return up from that paltry 2.8% to something approaching 5% or more. To do this, you’d need to focus on the assets on the left of the chart and hold less of the stuff on the right.
The rub
This sounds simple, but here’s the rub: Many managed portfolio funds and services are heavily focused on the right of the chart and, if anything, they’re moving further that way too (they’re running towards the lower returns, not away from them).
Why?
Because of human nature. It’s hard to work out what will win, so we’re attracted to what has won. And if we update that chart to show the last ten years’ performance (the lighter-coloured bars, see below), you can understand the magnetic draw of all things big, growthy and American. On this basis, they have dramatically overshot, which looks sexy in the rearview mirror, but deeply unappealing through the windscreen (which is the view that matters).
Source: Morningstar & Research Affiliates, as at March 2026. RA’s interactive tool uses historical data and current valuations to generate hypothetical estimated outcomes and does not recommend securities. Actual outcomes may vary materially and are not guaranteed.
Forecasts, hypothetical estimated outcomes and past performance are not reliable indicators of future performance.
It’s all-but impossible to time this, by the way. Before American large caps overshot by a lot, they overshot by a little. It would not have paid to abandon on them on that early minor overshoot. Which shows that chasing winners (a.k.a. ‘momentum’) can work for a while, partly because the impact of the crowd flocking into the winners actually prolongs their winning streak. And we’re seeing a lot of flocking: Advice firms are using more passive products, product providers are using more passive products, and clients are using more passive products. And as most passive products are more heavily weighted to large-caps and to US equities than their active equivalents, this exacerbates the trend.
But financial trends don’t last forever. If you and your clients have been herded onto the right of the chart, the reversal of this trend is likely to be painful. Any client experiencing this pain will look at a chart like the one above and ask: “Why on Earth did I have so much of the stuff on the right?!”.
Small wasn’t beautiful
The stuff on the left, meanwhile, is small caps. These have delivered an acceptable return over the last ten years, they’ve just been dwarfed by how big companies performed. The flipside of that, however, is that they haven’t overshot. So, their valuations are attractive, and on these numbers, the next ten years look even better than the last.
Now, I can understand why you wouldn’t put all your money into smaller companies (just as we don’t), but why would you avoid them completely (as many portfolio products are)? Is that a deliberate choice? And if so, why? Or is it just an output of the products you’ve chosen (or have been chosen for you)? These may not feel like important questions today, but in a few years’ time, they may be the only ones being asked.
Of course, as I stated upfront, these forecasts are a long way from bulletproof. Would I concentrate all my own money in small-cap value stocks based on the chart above? Nope, I wouldn’t. And I don’t: I spread it across all of those categories, albeit with more bias to the left than most of my peers. But would I concentrate it all on the right, as so many investors are doing today? No, that would be nuts.
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.
Important notice: this document has been prepared for professional investors and has been approved as a financial promotion by Downing LLP (“Downing”). 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 invested. 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.
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