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.
Investing in renewable energy: all you need to know about building a diverse portfolio
No items found.
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.
In this insight, we explore the various renewable energy technologies, the importance of diversification in maximising energy output and providing stable returns, and why supporting the underlying electricity infrastructure is crucial in achieving the government’s net zero goals.
The International Energy Agency stated renewable energy sources made up 26% of the world's energy consumption in 2020 and this figure must rise to about two-thirds by 2050 if we are to curb rising temperatures and deliver on net zero.
Various renewable energy technologies are being rolled out worldwide, but this requires significant government support and private investment.
According to the latest investment data reported by Bloomberg, global new investment in renewable energy has surpassed $350 billion in the first half of 2023, making a 22% jump compared to the period last year. This surge of investment reflects a commitment to global environmental sustainability and a recognition of its financial viability. While it is showing no signs of slowing down, to achieve the ambitious net zero target, investment will need to accelerate even further.
Creating a diversified portfolio of renewable energy assets can provide investors with attractive returns while contributing to the successful transition to a net-zero carbon economy - resulting in a cleaner, greener future. Below we provide resources to better understand various renewable energy assets and how to invest in them.
Investing in solar energy – harnessing the power of the sun
Since 1954 when the first ‘practical’ PV solar cell was developed, solar cell efficiency has made breakthroughs. Solar-cell efficiency refers to the portion of energy in the form of sunlight that can be converted via photovoltaics (PV) into electricity by the solar cell.
In 1960, where the first use of commercial solar energy was used, Hoffman Electric achieved 14% efficiency in their PV cell. Fast forward to 2020, where NREL achieved a 47% efficiency with their solar cell, showcasing the ever-evolving nature of solar cell technology.
Solar energy is a key component of the global energy mix – and our dependence on it will only grow as its efficiency improves, not to mention the necessity to move away from fossil fuels.
With advancements in solar-cell efficiency, solar power is becoming an increasingly cost-effective and reliable energy source. Its role in the energy mix is set to expand, making it a compelling option for investors.
Find out more in our following insight, where we examine the evolution of solar power, its role in the global energy transition, and discuss why the technology should form a meaningful component of any diversified investment portfolio.
Investing in wind energy – blowing in the right direction
Wind power is now crucial to our future renewable energy mix. It’s estimated that onshore and offshore wind will generate more than one-third (35%) of total electricity needs, becoming the prominent generation source by 2050.
However, in 2022, the wind investment in Europe was the lowest it's been since 2009, a stark reminder to policy makers and governments who need to restore investor confidence. The REPowerEU agenda now wants the EU to expand its wind capacity from 190 GW today to 480 GW by 2030. This means building 35 GW of new wind turbines a year until 2030 to meet Europe’s 2030 climate and energy security targets.
Wind power's potential to generate over a third of total worldwide electricity by 2050 positions it as a key player in the renewable sector. Despite recent investment dips, the long-term outlook remains strong, offering opportunities for investors.
In our insight, a 101 on wind power technology, we review the evolution of wind power, explore its role in the global energy transition, and discuss why investing in wind technology should form a growing part of a diversified portfolio.
Hydropower is one of the oldest and most widely used clean energy sources, accounting for more than 60% of the world’s renewable generation. Furthermore, if the world is to decarbonise and meet the climate goals set in the Paris Agreement, hydropower must more than double by 2050. In this article, we analyse the evolution of hydro power, its role in the global transition towards cleaner energy, and discuss why investing in hydropower should form a growing part of a diversified investment portfolio.
Wind farms, hydro plants and solar farms are vital aspects of the renewable energy mix, however these technologies need to harmoniously co-exist with the national infrastructure that distributes the power. Little is usually spoken about the vital infrastructure that enables the stability of the electricity grid, and the investment opportunity this segment of the energy infrastructure sector offers.
As well as investing in assets that generate energy, it’s important to invest right across the energy infrastructure sector including assets that help to store, moderate and distribute that energy.
Infrastructure investments could offer a stable return profile and are key to the efficient distribution and storage of renewable energy. This sector presents an opportunity for investors to contribute to the resilience of energy systems while tapping into a steady income stream.
As the investment communities’ understanding of renewables has evolved, so has our emphasis on diversification of renewable energy sources.
Renewable energy technologies such as wind, solar and hydropower are seasonal and intermittent. By combining investments in multiple asset classes and geographies - as demonstrated in the below graph - you reduce the reliance on any single technology, any given natural resource and particular weather patterns.
Data source: Generation graph as at 30 June 2023, actual generation (2012 – 2022 for hydro and wind, 2016 – 2022 for solar) from Downing Renewables & Infrastructure Trust plc
By diversifying across multiple renewable energy technologies, we aim to aid the government's net zero carbon ambitions, generate positive environmental and social impacts for communities, and provide an opportunity for stable returns for investors. Investing in renewables reflects our belief that the transition to clean energy is crucial and can present attractive growth opportunities.
.jpeg)
