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.
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.
Do you know your government bonds from your premium bonds? Or how bonds compare to other asset classes?
At Downing, we provide solutions that match your investment challenges. Our bond platform provides an opportunity to invest in asset-backed unlisted corporate bonds in sectors such as healthcare, hospitality, wholesale finance and property.
We understand that it can be hard to navigate the many types of bonds available so we put together a quick guide.
What are bonds?
Bonds are a type of investment that represent a loan from an investor to a borrower, much like an ‘I owe you’. When you purchase a bond, you (the bondholder) are lending money to the bond issuer (borrower) in exchange for regular interest payments, also known as coupons. This is with an understanding that the initial invested amount (face value of the bond) will be repaid to you when the bond reaches maturity, which is at the end of the agreed term. The return that you receive from the bond (the initial investment amount plus the interest earned) is referred to as the yield. Bond issuers may include banks, private companies, or governments, seeking funds for various purposes such as expansion activities or to fund development projects.
Case study:
Alice purchases a bond for £10,000 with a 5-year maturity with 5% annual interest payments
Alice will receive an annual interest payment of £500 each year (which totals £2,500) and, when the bond reaches maturity, she will get back the initial £10,000 she invested. This is assuming there have been no defaults.
Please note that the returns displayed above are for illustrative purposes only, capital is at risk and interest payments are not guaranteed.
How do bonds compare to other asset classes?
The other main traditional asset class is equities, which you might know as stocks and shares. If you purchase shares in a company, you are buying a portion of the ownership of that company and the value of your shares will either increase or decrease based on company performance and other factors.
If you purchase bonds, you are providing debt and lending to that company rather than owning part of it. Unlike equities, bonds typically offer a fixed return for their duration and you receive your initial investment back at the end of the term. This is why bonds are known as 'fixed income' investments.
Types of bonds:
Government Bonds
Like their name suggests, these are bonds issued by the government of a country to raise funds for public spending, infrastructure projects, or managing budget deficits, amongst other things. In the UK, they are commonly known as gilts but go by different names in other countries, such as T-bills (treasury bills) in the US,Bunds in Germany, and OATs in France.
Gilts are known to be relatively safe investments because they are backed by the UK government, and typically offer fixed or variable interest payments, known as coupon payments. They are considered highly liquid as they can be traded on secondary markets. This also means that the value of the bond can go up as well as down as interest rates fluctuate, with any capital gain being exempt from tax. Some investors may experience a loss if they need to exit the Bond before the maturity date.
Premium Bonds
Unique to the United Kingdom and backed by the government, Premium Bonds are a type of savings product offered by National Savings and Investments (NS&I). Unlike traditional savings accounts that pay interest, Premium Bonds offer the chance to win tax-free prizes in a monthly prize draw.
Each £1 invested equates to one Premium Bond that will be entered into a monthly draw. There is a £25 minimum investment and a £50,000 maximum investment, and monies invested can be redeemed at any time. If you are looking for regular income or a product that keeps up with inflation, it is likely that this type of product is not for you.
Bond Exchange Traded Funds (ETFs)
Bond ETFs are investment funds traded on exchanges such as the London Stock Exchange (LSE). Unlike individual bonds, the investor is purchasing shares in a fund that invests in bonds.
They are usually made-up of a variety of bonds, including corporate bonds, government bonds and municipal bonds (issued by local councils) and so can provide investors with exposure to a diversified bond portfolio with just a single trade. Holding a number of bonds with varying maturity dates means that the Bond ETF receives regular coupon payments, which are passed onto investors in the form of monthly or six-monthly interest payments.
Unlike some of the other bonds we have mentioned in our guide, there is not a fixed repayment date, and investors can buy or sell shares in the Bond ETF at anytime. While they are generally less volatile than stocks and shares, they are subject to fluctuations in value due to interest rates, credit risk and market sentiment –factors to consider before making an investment decision.
Corporate Bonds
Corporate Bonds are debt-based securities issued by private and public companies. They fall broadly under two categories, listed and unlisted. There are various reasons why a company would issue a bond such as expansion, research and development, as well as refinancing existing debt.
The main difference between listed and unlisted corporate bonds, lies in their trading status and accessibility to investors. Listed bonds are traded on public exchanges or bond markets. Being listed on exchanges means they provide greater liquidity. This is not the same as with stocks and shares as investors are still loaning money to a business in return for interest, rather than purchasing a share of that business.
Unlisted corporate bonds are not traded on public exchanges and instead are sold privately, typically to institutional investors, such as pension funds, insurance companies, and asset managers. They can be an attractive option for companies looking to raise funds as they can provide more flexibility and lower administrative costs, compared to listed bonds.
What to consider before investing in bonds
The benefits of investing
Diversification Investing in bonds, alongside other asset types, creates diversity in an investment portfolio. This helps to reduce the risk of a portfolio facing low returns.
Predictibility If an investor is seeking greater certainty from their investments, bonds which provide regular interest payments are typically more predictable than income through, for example, stock dividends.
Security Whether it's a government or company issuing it, bonds typically provide some level of security. It is important to research and understand what that security is before investing.
Choice Investors have the choice of bonds with various maturities, short term, medium term and long term. Investors can therefore choose a term that is best suited to their needs.
The risk of investing
The risk of investing
Bonds can be sensitive to interest rate changes. If interest rates rise, the value of the bond can drop and investors may suffer a loss if they need to exit the bond early.
Credit risk
Credit risk occurs where the company who issued the bond is in financial difficulty and is unable to pay the investor their interest payments or repay their initial capital when the bond reaches maturity.
Inflation risk
The return an investor receives from a bond may be negatively affected by an increase in inflation, due to their fixed nature, inflation can erode the value of the bond.
Liquidity
Bonds may be more illiquid than other assets, and therefore can be difficult to sell. This means that they may be less attractive for investors who are seeking quick access to their funds.
An overview of Downing Bonds
Downing Bonds is a platform offering investors access to unlisted corporate bonds and enabling them to diversify their portfolios with those opportunities. The platform was established in 2016 to provide everyday investors access to investments historically inaccessible because of their entry requirements.
We benefit from Downing’s 35+ years of investment management experience. Our award-winning investment teams not only seek out attractive investment opportunities, but also work with those businesses to help reach their key objectives.
Downing Bonds focuses on lending to asset-backed businesses across diverse industries such as property development, care homes and hospitality. Investors can choose which industries to invest in and while seeking competitive returns they are also contributing directly to the sectors they are passionate about.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. For personalised advice, consult with a financial adviser.
"Bondholder" The investor who purchases a bond and lends money to the bond issuer.
"Bond issuer" The entity, which can be a government, corporation, or other organisation, borrowing funds by issuing bonds.
"Capital gain" Profit earned on the sale of an asset which has increased in value over the holding period.
"Coupon payments" Interest payments made by the bond issuer to the bondholder, typically at fixed intervals until the bond matures.
"Credit" "Defaults" The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.
"Diversification" Failure to make required interest or principle payments on a debt.
"Face value" The process of allocating capital in a way that reduces the exposure to any one particular asset or risk.
"Inflation" A change in the prices of goods and services in an economy over time.
"Institutional investor" Organisations that invest large sums of money on behalf of others, such as pension funds, insurance companies, mutual funds, and hedge funds.
"Interest rate" The price paid to borrow money.
"Liquidity" The ease with which an investment can be bought or sold.
"Maturity" The date when the bond issuer repays the face value of the bond to the bondholder, marking the end of the bond term.
"Yield" Returns an investor expects to receive each year over its term to maturity.
Risk warning
Important notice: This guide 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. No reliance should be made on this content to inform any investment or tax planning decision. This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
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