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8/3/2024
5
min read

Understanding her needs: why financial advisers must tailor their approach for women

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 is seeing 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

Learn more about the Fund here.


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.

The pervasive nature of the gender pay gap persists across industries and job roles. In 2023, the average pay for women in the UK was £31.7k, notably lower than the £37.4k earned by men[1]. Despite a positive trend of gradual decline over the past decade, there's still ample room for improvement, particularly within the financial services sector, where the gender pay gap remains alarmingly high at 26.6%[2]

Pay gender gap

While the gender pay gap is well documented and acknowledged as an issue, an aspect that tends to get less attention is the disparities in investment behaviour between men and women. 

Women are statistically less inclined to invest than men, and when they do, they frequently lean towards keeping the safety of cash ISAs. Factors contributing to this trend include the wage gap which limits women’s ability to invest as much as men due to having less disposable income. In addition, various other explanations have been proposed: 

  1. Lack of financial education: Historically, women have been less exposed to financial education and investment opportunities compared to men. This can lead to lower confidence in investing and reluctance to engage in financial markets. 
  2. Risk perception: Research suggests that women tend to be more risk-averse than men when it comes to investing. They may prefer safer, lower-risk investment options which might result in lower returns, but also offer more security. 
  3. Confidence in understanding: Women typically need to know more than men would before investing, therefore requiring further confidence in the investment before going ahead. 
  4. Underrepresentation in the financial industry: The financial industry has historically been male-dominated, which can create barriers for women to access investment opportunities and receive adequate financial advice. 

Addressing these disparities requires efforts to provide better financial education and resources to women, promote gender equality in the workplace, and encourage more diverse representation in the financial industry. Increasing awareness of these issues and providing support systems can help empower women to take control of their financial futures and invest more confidently. 

But why should financial advisers and wealth managers be looking at this? 

By 2025, 60% of Britain’s wealth will be in female hands, yet only 7% of advisers have a strategy for advising women[3]. That is a huge opportunity for financial advisers, but also detrimental for those who fail to actively engage with this growing segment of the market.

Despite the prevailing gender pay gap, HMRC's report for the tax year 2020 to 2021 reveals intriguing insights: Taxpaying estates owned by males carried an overall tax liability of £2.71 billion, while those owned by females showed a higher aggregate tax liability of £3.04 billion. Notably, female-owned estates consistently exhibit slightly elevated tax burdens compared to their male counterparts. This discrepancy is likely influenced by the fact that women tend to enjoy a longer life expectancy than men[5]

These statistics underscore the evident necessity for females to have access to financial advice. Additionally, it's crucial for financial advisers to recognise that exclusively engaging with the male member of a household can pose significant risks. If that individual were to pass away unexpectedly, it could have severe repercussions for the adviser's business.

According to a McKinsey survey, 70% of women who inherit wealth switch advisers within one year of their husband's death[4]. This represents a significant loss of potential clients for advisers who fail to engage with them effectively. 

One effective strategy to address this issue is to engage with clients' spouses at an early stage. This not only facilitates intergenerational planning for the family by understanding their objectives but also safeguards an adviser's business from potential asset outflows upon a client's passing. Some advisers have chosen to develop a dedicated female engagement plan to enhance their approach. Overall, crafting an engagement plan tailored for women not only caters to their distinct financial requirements but also presents a strategic opportunity for financial advisers to build trust, empower clients, and tap into a rapidly growing market segment. 

It's also crucial to recognise that women often have a different approach to investing compared to men. Numerous studies have consistently shown that women tend to be more risk-averse and less likely to invest in stocks, preferring safer options such as property investment. For instance, in the UK, approximately half of landlords are female, indicating a preference for property investment due to its perceived safety and stability. Conversely, women hold only 8.5% of cryptocurrency investments, acknowledging the higher volatility and risk associated with this asset class[3]. Additionally, women are more likely to prioritise goals such as financial security and long-term planning. 

To bridge this gap, one approach could involve actively seeking female input when designing financial plans or products. A crucial step in achieving this is ensuring fair representation of women within a company, particularly in client-facing teams and those developing tailored propositions for female clients. It's crucial to align marketing materials and messaging with this objective to ensure coherence and relevance, effectively addressing these differences in investment behaviour. 

To hammer home this point, a 2021 survey conducted by WealthiHer, a think tank dedicated to supporting female investors, revealed a striking 72% of women feel misunderstood by the financial services industry, with an equal percentage believing that biases against women remain[6]

Recognising and comprehensively understanding female clients is a strategic necessity for financial advisers looking to thrive in an increasingly diverse and competitive landscape. Through proactive engagement, addressing their unique needs, and cultivating trust, advisers can position themselves to capitalise on the significant market potential presented by this demographic. In doing so, they not only strengthen client relationships but also fortify the resilience and longevity of their business, ensuring they remain relevant and successful in the ever-evolving financial landscape. 

Sources: 

  1. Statistica, Median annual earnings for full-time employees in the United Kingdom from 1999 to 2023, by gender, November 2023 
  2. PwC, Gender pay gap and diversity in financial services, March 2022 
  3. Schroders, Taking the Reigns: Female Clients and the Transfer of Wealth, September 2021 
  4. McKinsey & Company, Women as the new wave of growth in US wealth management, July 2020 
  5. https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary  
  6. WEALTHiHER network, The changing face of women’s wealth, 2022 

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