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Downing Renewable and Infrastructure Trust (DORE) is one year old in 2021!
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Downing
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.
To celebrate the first anniversary of Downing Renewables and Infrastructure Trust (DORE) being listed on the London Stock Exchange, we spoke to Downing’s Head of Energy and Infrastructure, Tom Williams, about a successful first 12 months and what to expect in the next year.
1. What were DORE’s notable milestones over the first year?
Tom Williams (TW): It has to start with the investments we have made and how they have performed. I look back now on our standing start in December last year and how we have not only delivered but also exceeded, our promises to investors – I am immensely proud of the team. We're pleased that DORE is now starting to make a difference and is contributing towards our journey to net zero, but we recognise that there is a long way to go!
If you look at the portfolio, hydropower is the standout investment. These were carved out of a large utility and had to be transitioned into our ownership and management throughout 2021. There is a huge amount of work involved when taking on full operational responsibility for the production facilities, dams and reservoirs. There is so much to consider in addition to the operations and maintenance, such as production planning, control and dispatch, and health and safety. We’ve been fortunate to be able to start with a clean slate and have tried to approach this with a different mindset; how can technology and the internet of things (IoT) increase safety, increase revenue optimisation and reduce costs? The results will start to be seen over the next few years as we implement these different ideas.
Last but not least was how we adapted and rose to the challenges of Covid-19. Working from home has gone very well from the perspective of our systems and processes but has taken a toll on everyone’s mental health. We have all had ups and downs, but it is to the team’s credit here at Downing that they have battled through and remained strong for clients and our wider network.
2. In your opinion, what notable steps have been made in the UK’s energy transition in 2021?
TW: There have been a couple of events this year that focused public thinking around energy consumption. COP26 has been widely covered and is a tremendous positive, but for me, the markets have added their own voice - the price of mandatory carbon increased very significantly, as did the price of gas.
These two factors, more than any others, have brought home to people in the UK where our energy comes from and how reliant we still are on fossil fuels from far-flung places. It is constantly in the news in one form or another, whether it is a lack of petrol at the pumps or a retail energy supplier going bust as a result of rising costs. I wonder if the direct intrusion of this issue into peoples’ lives might be the more significant factor for the UK’s energy transition in the future?
3. What are the key energy trends to look out for in 2022?
TW: I think that the impetus behind renewable energy will continue.
We haven’t yet solved the challenges of the increased penetration of renewables into the UK’s energy generation fleet and so I also expect storage and flexible generation to remain firmly in focus.
In the Nordics, it will be very interesting to see how the distribution network operators (DSOs) and transmission system operators (TSO) procure ancillary services. The system has so much in-built storage (through hydropower) that the strain on the grid has been felt less than in the UK, but it is rising.
4. What can we expect to see from DORE in the next 12 months?
TW: We’ve got ambitious growth plans and are looking forward to continuing to diversify the portfolio by technology and geography. There are plenty of near-term opportunities out there, so watch this space!
5. What wider trends do you think will make a big difference heading in the future for the energy transition?
TW: I wonder if this will be the year when the voluntary carbon markets return? We are following with interest the amendments to Article 6 made at COP26 and the recent announcements by the London Stock Exchange. Companies already have established offset programmes and some, like Microsoft, are even stating that their aim is not merely to be carbon neutral going forward, but carbon neutral going back to its establishment in the 1970s. However, this is not widespread and governmental and regulatory encouragement in this area would be welcomed.
I also think hydrogen could make a huge difference. I’ll be watching carefully to see how it emerges and whether projects will get off the ground. It feels like a natural place for the oil majors to move into with their existing infrastructure.
If this is the case, a hydrogen transition could be a significant contribution to our campaign against climate change.
Please note: Capital at risk. Returns not guaranteed. 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. Capital at risk. Returns not guaranteed.
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