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Rosemary Banyard – ‘Covid didn’t impact my stock selection’ 2021
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Rosemary Banyard
Fund Manager
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.
VT Downing Unique Opportunities Fund
The VT Downing Unique Opportunities Fund managed by Rosemary Banyard was launched in March 2020, so has been managed exclusively during Covid-19.
The fund, a portfolio of 25-40 positions with a market cap range of £150 million to £10 billion, has a quality focus. Rosemary looks for companies with unique characteristics that protect them against competitors and allow them to earn above average returns on equity capital. The characteristics she looks for include intangible assets such as brands, patents or regulatory licences; cost advantages stemming from process, location, scale or access to a unique asset; being the leading network in a business segment; and high switching costs which generate high customer retention rates.
While the pandemic has obviously had a major impact on companies and markets over the last 12 months, it has not changed the way Rosemary manages money. There are only seven names in the fund now which were not in the initial pre-Covid model portfolio. So while Covid-19 has not fundamentally changed her company selection, the manager believes that some of these businesses will benefit from emerging from lockdown.
Rosemary Banyard comments:
“The single biggest thing that will impact a few companies in the fund will be a return to some sort of normality for hospitals. Both in terms of carrying out non urgent operations and a recovery in outpatient procedures. Advanced Medical Solutions supplies wound dressings, and Tristel supplies, among other things, disinfectant for outpatient equipment. These businesses should do a lot better when hopefully our hospitals get back to normal. But I would have bought them anyway because they have very good market positions and lots of growth potential in the medium and long term.”
On the subject of companies pulling through the crisis, Rosemary believes that the most important thing that’s allowed these companies to survive lockdown is that they are very conservatively financed.
“There are 30 holdings in the fund and only six have any debt at all - the rest have net cash. Only two have had to raise equity finance, and in both cases that was only a 5% placing. The most important thing that helped them survive is their financial structure. However, there are also companies that have strengthened their positions with brand and service. An example might be Dunelm. Around three years ago, only 14% of revenues came from online sales. At the moment there are no shops open and they are trading at 70% of previous revenues, so there’s been a massive increase in demand online for their homeware products. That is testament to their brand, their range and their service levels.”
The fund’s focus is very much on UK small and mid-caps, and approximately 30% of the fund is invested in the Alternative Investment Market (AIM). A recent addition to the portfolio listed on AIM is Ergomed.
“The business has changed a lot since it listed a few years ago. It has always had a bedrock of performing clinical trials for drug companies that have to get through three phases of trials to get a drug approved. The group has recently added pharmacovigilance which means that it does safety tests that are carried out on drugs post launch. Particularly they specialise in trials and testing for cancer and orphan drugs, and they also have a unique network which includes carrying out trials in the Middle East and Africa where a lot of competitors don’t operate. Ergomed have number of unique aspects and specialisms to their business which are growth areas. They are also building up a portfolio in the US, another potentially strong and growing market.”
Performance of the fund since launch on 23 March 2020 has been strong, returning 53.53% versus the IA UK All Companies TR sector 54.35% .
Rosemary Banyard concludes:
“The past 12 months have been challenging for everyone, and I am pleased to have delivered positive returns in a difficult environment. However, I would stress that one year is a very short timescale and the aim of the fund is to deliver investors with a real return on their investment over the medium and long term. Importantly, average cash balances over the last 12 months were 20% which reflects the caution and care I applied while investing into the teeth of the pandemic. I am confident that the companies in the portfolio have resilient balance sheets and predictable earning streams, and they will keep delivering over time.”
Banyard began her career with James Capel & Co where she was a senior investment analyst for 12 years before becoming a fund manager at AIB Govett. She rose to prominence and developed a reputation as one of the leading female fund managers in the UK after she joined Schroders in 1997. For almost 20 years she was known for running the acclaimed Schroder UK Smaller Companies Fund with Andy Brough, and was for many years lead manager of the award-winning Schroder Mid Cap Fund PLC as well as heading up several other segregated UK equity mandates, managing total assets of circa £1 billion. In 2016 she joined Sanford DeLand to launch and manage the Free Spirit Fund. The Schroder UK Mid Cap trust returned 16% pa while she was manager and in her two and a half years managing money at Sanford DeLand the Free Spirit Fund returned 31% placing it in the top decile of the IA UK All Companies sector.
Opinions expressed in this document represent the views of the investment manager at the time of publication, are subject to change, and should not be interpreted as investment advice.
Risk warning: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 and are higher risk compared to investments solely in larger, more established companies. Diversification may not be achieved and investments may be in the same sector. 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.
Important notice: This document is intended for retail investors and their advisers and has been approved and issued as a financial promotion under the Financial Services and Markets Act 2000 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 authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England No. OC341575. Registered Office: St Magnus House, 3 Lower Thames Street, London EC3R 6HD.
About Downing Fund Managers
Downing Fund Managers is part of Downing LLP, a company with over 30 years’ experience and more than £1 billion AUM. As investment specialists in smaller companies and funds, we focus on areas of the market where we believe there are structural inefficiencies and where our proprietary research can uncover hidden gems that we believe will provide outperformance over the long term. We are also committed to the Principles of Responsible Investment, which can make investments more rewarding by being profitable for our investors.
Downing LLP is authorised and regulated by the Financial Conduct Authority (FRN: 545025). Registered in England and Wales (No. OC341575). Registered Office: 6th Floor, St Magnus House, 3 Lower Thames Street, London EC3R 6HD.
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