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The importance of a wider perspective in Estate Planning
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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.
Wealth transferring through the generations
A lot of content has been produced about the rise in the already high levels of wealth transferring through the generations over the next 25 years. According to the King’s Court Trust, annual intergenerational wealth transfers will increase from £69 billion in 2017 to £115 billion in 20271, with a total of £5.5 trillion changing hands in the UK between 2015 and 20452, making estate planning a potentially very lucrative area for advisers to be engaged in.
Apart from the importance this places on good estate planning advice, it also presents a number of considerations and opportunities for advisers around the retention of clients and assets under management once the funds have passed to the next generation. The follow-up report from the King’s Court Trust found that 15% of IFAs reported losing more than 50% of the value of assets under management that have been through intergenerational transfers in the last financial year, with 34% reporting losing 20% or more3.
25% of IFAs reported that one of the reasons beneficiaries chose to take business elsewhere was the lack of a relationship with the deceased’s IFA4. Family loyalty is often less important to the younger generation than historically has been the case. They are more concerned about price and service and are happy to shop around to get the best deal, as they would for a mobile phone or electricity contract. Considerations such as digital access and delivery methods of advice may also now be a differentiator, so ensuring you and your practice are getting up to speed will be important.
One way to combat the lack of a relationship with the younger generation could be to engage with the beneficiaries of the estate during the planning process. This can make any transition after death smoother and enable you to demonstrate the value-add that a good financial adviser can offer. By establishing contact and communication at this point, relationships can be built and the reasons behind any planning plus the benefits to the individual and the beneficiaries can be understood and appreciated. It also more easily facilitates any assistance needed during the probate period, again promoting the value of the relationship.
Another reason to engage with the next generation earlier is the opportunity to understand what the drivers behind their own investment approach might be, post inheritance. For example, impact investing, sustainability and clean energy investing are all areas that are generally valued much more highly by millennials than previous generations (albeit they are growing in importance across all age demographics). Alternatively, it could be that the beneficiaries may have no interest in investing at all, but you may find that ESG and impact investing are more engaging for them, giving you the chance to retain funds under management that may have otherwise been withdrawn.
For those future potential clients that are keen to continue investing their funds, the greater ease of carrying out research online, compared to previous generations, means that specific investment advice may now be of less perceived value. Being able to demonstrate the value of more complex planning solutions with a thought through and well researched investment strategy suited to their family circumstances could be the hook that retains those funds in the future.
In summary, as the wealth of the baby boomer generation gets passed on, those advisers that are able to properly engage with the next generation and offer more than just basic estate planning for clients are most likely to reap the rewards in the long term.
[1] ‘Wealth Transfer in the UK’ – Kings Court Trust - https://app.hubspot.com/documents/2632673/view/15122287?accessId=e1731b
[2] ‘Wealth Transfer in the UK’ – Kings Court Trust - https://app.hubspot.com/documents/2632673/view/15122287?accessId=e1731b
[3] ‘Passing on the Pounds’ – Kings Court Trust - https://app.hubspot.com/documents/2632673/view/49286495?accessId=f4570a
[4] ‘Passing on the Pounds’ – Kings Court Trust - https://app.hubspot.com/documents/2632673/view/49286495?accessId=f4570a
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