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.
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.
Nordics a leader in renewable energy
The Nordic region, consisting of Norway, Sweden, Finland, Denmark and Iceland, is a leader in renewable energy. These countries have been at the forefront of renewable energy since the start of the 20th century. We examine what factors have contributed to the likes of Norway and Sweden’s rise to the top of clean energy generation and the opportunities that lie ahead for the region.
Renewable energy is a growing sector in all five Nordic countries. Globally, wind power has been the fastest-growing source of renewable energy in recent years and installed capacity is expanding in the region. In 2000, Sweden generated only 0.5TWh of wind energy but today there are more than 4,000 wind turbines equating to 27.6 TWh - generating 17% of the country’s electricity. Finland is also ramping up its capability in wind and it is predicted that by 2025 more than 25% of the country’s energy will be generated from this source - a sharp increase from 1% recorded less than 10 years ago.
When it comes to solar, Norway has limited resources in solar energy, but it is one of the world’s largest producers of solar-grade silicon and silicon solar cells. Similarly, in Sweden, solar makes up a minority of the renewable energy capacity – although the Swedish government has ambitious plans to increase the share of solar power in the Swedish energy mix from 0.5% to 10%. Creating a mix of renewable energy sources is a practical means of producing a consistent power flow.
But hydropower is considered the renewable energy technology that is most synonymous with the Nordics. Norway, Sweden and Iceland’s landscapes are cut with numerous rivers, waterfalls and fjords and these natural water features all provide numerous opportunities to harvest hydropower.
An attractive feature of hydropower in particular is the longevity of the technology. Numerous plants across the Nordics have been established for almost 100 years and can still efficiently generate renewable energy.
For example, Wallhaga is a run-of-river hydropower plant owned by Downing Renewables and Infrastructure Trust (DORE) located on the Voxnan river in Edbysn, Ovanåker municipality. It produces around 12 GWh an average year. Wallhaga’s first generator was commissioned in 1932 with a second put into operation in 1989.
A run-of-river hydro plant generates power by channelling river water into a generator house. The force of the moving water spins a turbine and drives a generator. The water is then fed back into the main river downstream.
A focus on diversification
Across the Nordic countries, two-thirds of electricity production is from renewable sources, which is enabled by the diversity of technologies. We’ve spoken about hydro, solar and wind, but biomass also makes a meaningful contribution in all Nordic countries. Diversification is vital to maintaining portfolio performance and can also be an attractive prospect for investors.
Different technologies produce energy at different times – when it isn’t windy and sunny, water still runs in the rivers. By investing in multiple technologies, investors will know that the assets will be creating energy more robustly, creating an opportunity for stable returns.
Additionally, by looking across the whole Nordic region, investors can benefit from a diversification of geography. Natural resources and prices of energy are different between locations within the Nordic region. The Nordic countries also export some of their electricity production to the UK and continental Europe through inter-connector cables, which connect the electricity grid systems in different countries. Through a diversified investment strategy across the Nordic region, investors can spread regulatory, pricing and policy risks that may occur when invested in only one country or area.
The fundamentals of investing in the Nordics should not be overlooked. As renewable energy is the main source of energy in the regions, there is a long-term pipeline of projects and investment opportunities. As the UK is a far more crowded investor space than the Nordics and power prices are affected differently between the UK and the Nordics, diversifying with these two areas can reduce risk for investors.
Downing in the Nordics
We are fortunate to have been invested in the Nordic region for well over a year now. We see it as a significant opportunity for growth due to the reasons mentioned above. Our investments to date have focused on Swedish and Norwegian hydro and Swedish wind, but we are looking to expand our investment footprint geographically and across technologies to cover solar, geothermal and biomass.
Handling this portfolio is our expert team of asset managers, along with a team of four professionals located in the Nordics themselves. We believe having a local presence is important to ensure the efficient performance of the assets.
Keeping it clean
The renewable energy momentum in the Nordics is continuing strongly with all Nordic countries setting ambitious targets. Norway has pledged to be carbon-neutral by 2030 and Sweden wants 100% renewable electricity by 2040. The Nordic region continues to be the blueprint for a clean energy future and with such inspiring growth plans in the sector, the future of renewable energy generation appears greener and cleaner.
Please note: Capital at risk. Returns not guaranteed. Changes in exchange rates may have an adverse effect on the value, price or income of investments. 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.
.jpeg)
