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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.
Biodiversity is making its way up the investment agenda as a natural companion to Climate Change.
The Taskforce on Nature related Financial Disclosures (TNFD) will mirror the path of adoption that the Task Force on Climate-Related Financial Disclosures (TCFD) has already proven, but how can we make sure we search out the opportunities and solutions alongside an appreciation of the risks?
Downing’s Head of Responsible Investment outlines how renewable energy is elevating biodiversity in the investment ecosystem.
While sitting in a fantastic session on biodiversity loss at the UK SIF Spring Conference recently, one of the top trending questions was "please could the panel comment on biodiversity positive investment opportunities?" The answer might be renewable energy but only if biodiversity is measured and managed.
Measuring and benefits
Renewable energy is meeting a well-understood environmental need, displacing emission-intensive generation from our energy consumption needs. We always mitigate damage to the natural environment and, beyond that, land planning applications almost always include an expectation of biodiversity net gain - but how is this measured?
For the purists, it’s typically using the biodiversity metric 3.1 calculation tool, developed in partnership by Department for Environment, Food & Rural Affairs alongside Natural England. This lens focuses on habitat types, but underpinning any healthy habitat is healthy soil.
Healthy soil, healthy planet
Intensive arable production, while feeding our growing population, comes with some acute environmental risks - poor soil health being one. Healthy soil is typically a balance of air, water, decayed plant matter, organic material and minerals such as sand, silt and clay. Some of the risks to soil health can be mitigated by adding synthetic and organic fertilisers but doing so can have negative effects on water quality and habitats. It's hard to mitigate the effects of soil compaction from the passage of heavy machinery like tractors and it's hard to avoid the carbon emissions from constantly turning over and exposing the top 30-50cm of soil.
Long before humans developed synthetic fertilisers, crop rotation and ‘resting’ land was the remedy for poor soil health. However, there has usually been a short-term economic price for not maximising the productivity of the land. Renewable energy has an important part to play in compensating farmers while the land is rested from intensive production techniques - but how do we measure and manage the benefits to soil health?
It's time to test
Reducing the time that soil is exposed to the elements by protecting it with wild grass and flower mixes can meaningfully slow the rate of soil erosion. Simply hammering a stake into the protected soil and measuring the topsoil height over time can illustrate how wild grass cover is slowing and reversing the effects of soil erosion.
A penetrometer measures the soil’s compaction or compressive strength in kilograms per square centimetre.
An earthworm count is a simple exercise that requires nothing more than a shovel and preferably some small children to help count.
You can test the water infiltration rate with a tin can full of soil, a small amount of water and a watch. This infiltration rate will tell us something about soil compaction, a bit about the balance of organic material and a lot about the soil’s ability to retain water. A soil slake test is equally simple and can be an indicator of biological activity and nutrient cycling in the soil. Cutting a cross-section into the soil will enable us to measure root depth and volume.
All these techniques sit within the ecologist and agronomist’s toolkit, and we want to understand these effects too.
It's easy to talk about the risks of biodiversity loss, but we can only start to manage the positive benefits for biodiversity and natural capital when we measure them. Having an easily used biodiversity calculation gives us a single number that we can plot on charts and manage improvement against over time but habitat loss and gain is only one aspect -we want to know what’s under the surface. We are farmers of energy and stewards of our landscape.
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