VT Downing Small & Mid-Cap Income Fund

We invest in a broad spectrum of UK companies, with market capitalisations ranging from £100 million to £4 billion. This wide universe provides the opportunity to find the businesses that we believe can deliver a compelling total shareholder return proposition - long-term capital growth and an attractive yield.

The VT Downing Small & Mid-Cap Income Fund takes a rigorous bottom-up approach involving proprietary research to help build a comprehensive understanding of the companies that the fund is investing in. This process helps identify companies with above-average returns on capital and management teams with the discipline to allocate capital to sustain those returns and drive shareholder value through capital growth and dividend payments.

This focus on company corporate governance creates an integrated ESG benefit as strong governance is a prerequisite of shared value creation for shareholders and positive environmental and social change.

Our typical investment process is laid out below:

- Screening c.2500 companies for three approaches to income which offer different blends of yield and capital growth potential

- Identify businesses with a track record of growing or sustained returns on capital

- Build an understanding of a business's sustainable competitive advantage combined with capital discipline that aims to continue to drive above-average returns on capital

- Understand why or if a valuation opportunity exists, with a focus on cash generation which is the main driver of value creation and dividend payments

- Portfolio construction that blends the three approaches to income to create the optimal risk-adjusted total shareholder return proposition.

- Ongoing monitoring of the portfolio and testing of the investment case

Our investment funds are not suitable investments for everyone, so we recommend seeking financial advice. This fund may not be appropriate if you plan to withdraw your money within five years. As with all investments, there are risks you should be aware of and comfortable with before you invest.

- The value of your portfolio can go down as well as up so your capital is at risk and there is no guarantee you will get your investment back

- Any income received from your investment can rise and fall

- Investments in this fund are generally higher risk compared to investments in blue chip companies on a main stock exchange

- The companies the fund invests in may be more volatile and less liquid than other investments

- The past performance of a fund is not a reliable indicator of future results

Please note this is only a brief overview of the risks involved with investing in the VT Downing Small & Mid-Cap Income Fund. Please read the full details of all the risks here before investing.

These charges cover the management and administration costs of running the fund. These charges reduce the potential growth of your investment.
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‍Entry charge: no initial charge‍

Ongoing charges*: Class A - 1.00%

Exit charge: no exit charge
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*Please note: This percentage is based on the net asset value of the sub-fund attributable to the relevant share class (plus VAT if applicable) as at 5 February 2024. This figure may vary from year to year. It excludes portfolio transaction costs. There may be further charges for buying and selling assets for the fund and 'dilution levy' costs associated with entering or exiting the fund. This is to cover costs associated with your transaction.

Please see the prospectus for more information.

‍Clarifying the effect of synthetic OCFs on our Funds

‍Investors may be aware of the new Packaged Retail and Insurance-based Investment Products (PRIIPs) legislation, which came into effect at the beginning of the year, requiring all listed investment companies (ICs), including investment trusts and closed-ended funds, to produce a key information document (KID PRIIP). This document provides information to retail clients about the risks, costs and potential gains and losses of the investment product.

On 25 March 2022, the FCA published is finalised amendments to the PRIIPs regime. The FCA’s amendments take effect from 25 March 2022. However, the FCA has introduced a transitional period until 31 December 2022.

These amendments fit into three categories:
- Clarification of the scope of the UK PRIIPs regime
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- Amendments and risk information that must be included in PRIIPS KIDs
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- Amendments regarding the calculation and disclosure of transactions costs in PRIIPs KIDS

To note: : legacy products traded on secondary markets are exempt from requiring a KIID PRIIP.

‍Until this year, the industry guidelines regarded ICs as listed equities with no requirement to disclose an OCF; therefore when our Funds’ underlying (or synthetic) OCFs were calculated these ICs carried a nil cost. Now, because ICs need to produce KIDs and disclose their OCFs, the Downing Funds’ synthetic OCFs will rise. It is important to state that just because the OCF of our Funds will rise, they don’t suddenly cost more, and Downing is not earning or charging more.

‍Our Funds will not suddenly cost more

It is worth expanding on the previously made point that just because the disclosed OCF of ICs will rise, and in turn so too will our Funds’ look-through OCF, neither suddenly cost more. Past performance reflects these costs that have always been in place. Therefore, just because these IC’s now have to report the costs involved, this doesn’t alter how we view their historic performance or dissuade us from investing in them in the future.