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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.
Growing interest in IPOs and a surge in pension fund interest put UK small-caps on course for strong growth.
UK small-caps poised for their strongest growth in decades
Judith Mackenzie, Partner and Head of Downing Fund Managers, says opportunities in the UK small-cap sector are the best for more than 30 years. Growing interest in IPOs and an increase in pension fund enquiries are creating the conditions for strong growth.
Judith believes the number of profitable and well-run UK small-cap firms with strong growth prospects, coupled with what she believes to be artificially low valuations, has created the most exciting investment opportunity in the space during her 30-plus-year career.
She dismisses talk of a ‘doom loop’ for UK markets and expects a ‘kicker’ within the next six to twelve months, which will trigger the next small-cap market growth phase.
Despite a challenging period in recent years, over the long term, UK small caps have provided higher returns than large caps. Analysis from a highly regarded Numis survey shows small caps delivered 13.9% annual returns from 31 January 1955 to 30 September 2025 compared with 11.2% for large caps.
IPO activity is accelerating as confidence returns to the UK market
Judith says the Downing Fund Mangers are seeing more small-caps making initial enquiries about coming to market through an initial public offering (IPO). In the last six months, they have seen nearly ten companies either intending to IPO or as part of an IPO fund raise. This is a significant increase in activity levels seen last year.
Pension funds are driving a new wave of small-cap momentum
The Mansion House Accord, which encourages pension funds to channel capital specifically towards UK businesses, including growth companies and those listed on AIM, has boosted interest. Local authority pension fund enquiries have increased, and MacKenzie says Downing has seen many organisations across the UK reaching out for information and education on this area of the market for the first time in Downing’s near 40-year history.
However, she says pension funds of all types are looking to increase their allocation to the UK small-cap sector because of the growing, attractive investment opportunities it offers, and not just on account of the focus Mansion House has placed on this area of the market.
Judith said:
"The UK small-cap growth market is an excellent place to invest, and the current conditions are probably the most favourable I have seen in my career. Within six to twelve months, we expect the sector to see a dramatic positive transformation – and although it doesn’t need a catalyst, there are sufficient potential triggers that could spark this. That could be ISA reform, the scrapping of stamp duty on IPO’s, the government providing certainty around pensions and look-through treatment, or reaffirming Business Relief for AIM. These are immediate levers that would boost confidence and unlock capital. Increasingly, institutional investors are returning to the sector, and we are seeing so many pension funds currently that a few years ago were not as aware of the great opportunities to be found on AIM and the small-cap space. We are also seeing more smaller private firms making initial enquiries about IPOs, indicating that there is growth in that market and demand as companies are seeking a UK listing. Julian Morse, CEO at leading investment bank Cavendish, says there has been an attitudinal sea change in the past year, and we agree. Gradually, investors are switching away from the sugar rush of investing in the US and the Mag7, which are potentially hugely over-valued, and realising there is good value in the UK small-cap sector.”
Although the small-cap and AIM markets have seen more modest returns than the broader UK market in recent years, renewed policy focus and investor interest could lead to significant long-term growth potential and Downing’s track record shows significant returns can be achieved with appropriate stock selection. The Downing AIM Estate Planning Service has achieved returns of 196% since launch in 2012 against returns of 16% for the FTSE AIM All Share during that period.
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 information has been prepared for professional investors and has been approved as a financial promotion by Downing LLP (“Downing”). Past performance is not a reliable indicator of future performance. 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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