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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.
Need for accelerated innovation in healthcare and life sciences
As Covid-19 continues to dominate the global agenda, early-stage UK technology companies in the healthcare and life sciences sectors are at the forefront of making the world a safer and more secure place to live in.
The need for accelerated innovation in global healthcare and life sciences has never been more urgent, as the world grapples with this once-in-a-generation challenge. A frontrunner in the global race to develop a Covid-19 vaccine, the UK has reminded the world of its world-leading research capabilities.
While Covid-19 has highlighted this need to a wider audience, the underlying opportunity was supported pre-Covid by key macro trends, such as the global increase in the over 60s population[1] with a higher demand for medical needs, and the ongoing wave of digitisation across every industry.
Further funding is needed to deliver sustainable and meaningful improvements in patient outcomes. This includes addressing operational bottlenecks, both within clinical processes and the provision of care, which are prevalent across the NHS. The pandemic has reminded the UK and the world of the strategic importance of having a strong healthcare and life sciences sector, not only from a public health perspective but also for economic and social stability.
As Dr Will Brooks, who has 30 years of industry experience and has held several C-suite positions within healthcare and life sciences companies, and currently heads the Healthcare team at Downing, comments: “I have a strong conviction in the need for further innovation and advancement within this sector to support the delivery of better patient outcomes. With its world-leading tertiary education and research institutions, the UK has in place a leading ecosystem to foster innovation as a global healthcare and life sciences hub.”
Four main themes for healthcare investment decisions
Downing looks at four main themes that inform their healthcare investment decisions:
From intervention to prevention. Even before Covid-19 struck, healthcare institutions in the UK suffered from over-capacity, under-resourcing and burdensome bureaucracy. As digitisation opens up the possibility of data-led decision-making, democratising patient data will allow both end- users and practitioners to make better-informed choices and for practitioners to advise on lifestyle improvements to reduce the likelihood of needing healthcare access in the first place. This results in vastly improved patient outcomes and increased bandwidth for care providers.
Point of care. The miniaturisation of devices and robustness and portability of equipment, coupled with advances in ArtificiaI Intelligence (AI) and software, are enabling faster diagnosis whereby patients are sent to dedicated and specialised diagnostic machinery and personnel. AI and software are also assisting medical professionals to make more efficient diagnoses with medical devices that, historically, required years of study and medical practice.
Personalisation. As lifespans increase and new technologies are introduced at higher price points, the total cost of healthcare is getting ever more expensive. Personalised therapeutics can provide increased efficacy in a more targeted and safe manner, as well as giving patients the reassurance of having better knowledge and control over their own healthcare.
Future Pharma. As new therapies come to market and transform standards of care, the healthcare industry as a whole must also keep pace with the required updates in infrastructure and logistics to administer these complex and novel therapies. The investmentopportunity lies not only in these therapeutic technologies themselves but also the surrounding infrastructure that facilitates them.
Using these four themes as their framework, Downing focuses on the following areas within healthcare and life sciences:
Pharmaceutical Services: companies that are seeking to de-risk the end-to-end development pathways of new medicines. Examples include Touchlight and The Electrospinning Company.
Medical Devices: entrepreneurs applying advancements in material sciences to medical services and equipment, such as the well-known bionic limbs company “turning disabilities into superpowers”, Open Bionics, as well as Adaptix and Invizius.
Therapeutics: novel therapies and platforms that can transform outcomes for patients by personalising medication to make them safer and more efficacious. Examples include DestinyPharma, LIFT BioSciences and Arecor.
Digital Health: companies that are taking a leap forward in computing and software and applying it to healthcare environments to improve decision making for practitioners and patients, such as MyRecovery and FundamentalVR.
Diagnostics: companies with novel technologies supporting wider coverage and improved precision for diagnosis. These include GENinCode, MIP Diagnostics, Congenica.
The spotlight is on the international healthcare community now more than ever. It is an exciting time to be an investor in this field and to be able to see many of these early-stage companies come to the fore to help solve some of the most demanding challenges of our time. The good news is that they are out there and they are making a big difference every day to the way we live.
About the team
Dr William Brooks, Investment Director
Will joined Downing in August 2018 to direct the healthcare activities of the Downing venture funds. He has over 30 years’ experience in healthcare and biotechnology with over 18 years’ experience in venture capital across Europe and the USA.
Dr Koujiro Tambara, Principal
Kouj joined the team in September 2018. Prior to Downing, he was Head of Operations at AssetVault, a Techstars cohort FinTech based in London. He holds a PhD in Chemistry from the University of Cambridge.
Matt Pierce, Associate
Matt joined Downing in 2018, having qualified as a chartered accountant at Deloitte where he focused on life science clients. After that he worked at Berenberg in the healthcare equity research team. Matt holds a degree in Biotechnology from the University of Edinburgh.
Risk warnings: if contemplating an investment or investment service, investors should seek independent advice or make his/her own decisions as to the appropriateness of the investment or investment service. Investments of investment services referred to may not be suitable for all recipients. The suitability of a particular strategy will depend on an investor's individual circumstances and objectives. An investor's Healthcare EIS portfolio will consist of companies in healthcare and life sciences sector so there is relatively limited diversification. Share prices, their values and income can go down as well as up and investors may get back less than their original investment. Past performance is not a guide to future performance. The extent and value of any tax advantages or benefits arising from the use of tax-advantaged services will vary according to the individual's circumstances. The levels and bases of taxation may also change. In compliance with the FCA rules, telephone calls may be recorded.
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