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DORE's Q1 Net Asset Value and Dividend Declaration 2022
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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.
The Board of Downing Renewables & Infrastructure Trust plc (the "Company" or "DORE") is pleased to announce the Company's unaudited Net Asset Value ("NAV") as at 31 March 2022 and the declaration of an interim dividend in respect of the period from 1 January to 31 March 2022.
Net Asset Value as at 31 March 2022
The Company reports that its unaudited NAV was £150.9 million or 110.1 pence per share as at 31 March 2022. This is an increase of 6.4% from the Company's NAV as at 31 December 2021 which was £141.8 million or 103.5 pence per share. Including the 1.25 pence per share dividend paid during the quarter, the Company's NAV total return for the period was 7.6%. The increase in NAV during the period was attributable to several factors including accretive acquisitions, increasing power prices, inflation and financial performance.
Accretive acquisitions
The three acquisitions completed during the first quarter, all of which were accretive, comprising two river-run hydro portfolios located in the SE2 and SE3 pricing areas in central Sweden with c.48 GWh of average annual production, which accounted for £3.1 million (2.3pps) of the NAV uplift and an operational 46 MWp onshore wind project located in north-east Sweden, which accounted for £2.2 million (1.6pps) of the NAV uplift.
An agreement to acquire two additional hydropower plants located in Sweden's southern SE4 pricing region with an aggregate forecast annual production of c.18 GWh p.a. was entered into after the end of the quarter ending 31 March 2022. This accretive acquisition has also now completed.
The portfolio, which is becoming increasingly diversified, comprises asset classes that have limited correlation to each other which reduces seasonality and intermittency.
The investment manager believes that hydropower, which is often overlooked as a source of renewable energy, will be a key part of the energy transition as it is possible to store water in reservoirs and use this to produce energy when supply from renewable sources elsewhere is low. This helps to reduce price volatility, mitigate price capture risk and maximise the value of the energy stored for end users and investors.
Powerprices and inflation
The increase in forecast future power prices, contributed to £2.9 million (2.1pps) of the NAV uplift.
UK outturn RPI for the quarter ending March 2022 was 1.8%, considerably in excess of the Investment Manager's annualised valuation assumption of 2.75% for the third successive quarter. In light of the continuing rises in actual and forecast inflation across Europe and the UK, 2022 inflation forecasts have been increased to 7.8%, up from 2.75% in the UK, and 4% in Sweden, up from 1.8%. The adjusted inflation forecasts contributed to £2.9 million (2.1pps) of the NAV uplift. Inflation assumptions for 2023 onwards are unchanged.
Performance
Financial performance for the quarter was above expectations and contributed to £0.5 million (0.4pps) of the NAV uplift. The UK solar portfolio led the way with generation and operating profit both c.14% above budget.
The hydro portfolio was below budget generation due to dry weather and a delayed spring flood but returned a strong financial result following cost savings, particularly in relation to the successful transition of the business to independent operations which occurred on time and below budget. The wind portfolio was below target generation and operating profits were also £0.2 million below budget. This shortfall was offset by the strong solar performance.
Discount rates for hydropower and solar assets are unchanged from year-end, and the introduction of the wind asset has moved the weighted average discount rate to 7.1% p.a.
Costs, management fees and the dividend of 1.25pps (£1.7 million) paid during the quarter represented the balance of the NAV movements.
Dividend Declaration and Guidance
The Board has declared an interim dividend in respect of the period from 31 December 2021 to 31 March 2022 of 1.25 pence per Ordinary Share. The dividend will be paid on or around 30 June 2022 to shareholders on the register on 27 May 2022. The ex-dividend date will be 26 May 2022.
A portion of the Company's dividend is designated as an interest distribution for UK tax purposes. The interest streaming percentage for the dividend declared above is 65%.
The Company is targeting dividend payments totalling 5 pence per share for the financial year ending 31 December 2022*.
Hugh Little, Chairman, commented:
"We are very pleased to provide a strong positive quarterly performance and significant NAV uplift, driven mainly by three accretive acquisitions completed during the period and positive movements in power price and inflation forecasts. Given the continuing increases in power prices since the quarter end, we believe that the Company will continue to benefit from the positive pricing tailwinds. As recently announced, the Company has a strong pipeline of assets and is considering the issue of new shares to raise additional capital to take advantage of this pipeline, which should enhance the diversity of DORE's portfolio."
DORE has today published its quarterly factsheet and commentary to the end of March 2022. Copies can be downloaded from the Company's website: www.doretrust.com
* The dividend and return targets stated in this announcement are targets only and not profit forecasts. There can be no assurance that these targets will be met, or that the Company will make any distributions at all and they should not be taken as an indication of the Company's expected future results. The Company's actual returns will depend upon a number of factors, including but not limited to the Company's net income and level of ongoing charges. Accordingly, potential investors should not place any reliance on these targets and should decide for themselves whether or not the target dividend and target net total shareholder return are reasonable or achievable. Investors should note that references in this announcement to "dividends" and "distributions" are intended to cover both dividend income and income which is designated as an interest distribution for UK tax purposes and therefore subject to the interest streaming regime applicable to investment trusts.
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