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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.
As the global pandemic changed our lives immeasurably over the last year, the healthcare sector has come to the forefront of our collective mindset. Healthcare companies and services have worked tirelessly to provide care to the millions of people struck by the virus as well as giving more remote and digital support.
The innovation, knowledge and expertise of a number of companies has supported the research and development of a Covid-19 vaccine. The UK has been one of the world leaders in rolling out the vaccine: to date more than 31 million people in the UK have received their first dose.
Touchlight is a company that has been supporting Covid-19 vaccine producers and helping them succeed with its revolutionary DNA technology. Touchlight was recently named as the UK’s first synthetic biology unicorn in Forbes following a recent £42 million investment. Touchlight plans to use the funds to triple its manufacturing space and increase its production of DNA and launch 11 new state-of-the-art DNA production suites, creating up to 60 new jobs.
Why is DNA so important?
There are widespread use cases for DNA across the healthcare sector:
Personalised medication. DNA is the fundamental component of personalised genetic medication and is changing the lives of millions of people worldwide. This type of medication includes cell therapies for those who need blood transfusions and gene therapies for disorders such as cystic fibrosis, numerous cancers and muscular dystrophy (where targeted medication is used to correct or replace defective genes). The pandemic has further increased global demand for DNA, as well as cell and gene therapies.
Vaccinations. Traditional vaccines are made by growing weakened forms of a virus in a lab and can take months, even years, to produce. The Covid-19 pandemic has expedited the production of a new type of vaccine called an RNA vaccine. This is made from a DNA template in a lab which can be reproduced as a sequence and distributed electronically worldwide in seconds. Touchlight uses proprietary enzymatic, rather than culturing, methods to produce the DNA required for RNA vaccine manufacturing. This process materially shortens DNA production times and increases the quality and yield.
Frontier technology. At the present time, we are only scratching the surface of DNA technology. As we continue to understand it better, more DNA-based technologies will be developed and commercialised including vaccines, aptamers and other novel DNA applications. With research continuing, the application opportunities will increase with quicker adoption times to market.
Why Touchlight stands out
Touchlight grabbed our interest with their “Doggybone DNA”, dbDNA™– a patented, in vitro, dual enzyme technology that moves the process of creating DNA to chemical synthesis rather than ‘growing’ it. This enzyme amplification takes away reliance on bacterial fermentation and antibiotics, which in turn scales back on the capital expenditure and labour costs.
The dbDNA™ is safer and purer than its competitors in the market because it eliminates reliance on microbes to grow the DNA.
Production time for the dbDNA™ is one to two weeks, which is quicker than the market standard of at least one month and eliminates the risk of supply bottle necks due to the fast turnaround time.
Touchlight is disrupting the pricing and capacity power in the DNA market, while enabling groundbreaking therapies to be rolled out at a rapid pace. This was evident during the company’s involvement with Covid-19 vaccine providers, where they have been working to increase production yield at pace. The multi-million-dollar pipeline for the year ahead is also looking strong.
Given the strong management team led by CEO Jonny Ohlson who has been with the company since its inception in 2008, and the wider executive team, whose combined experience across the biology and genetics space spans hundreds of years, we were delighted to start working with Touchlight in 2020 and be part of their journey.
What the future holds
There are strong drivers accelerating the growth of the gene therapy market, including increasing awareness of gene therapy use, a surge in gene therapy trials, increasing regulatory scrutiny, and large investment from biopharma, governments and research institutes. Companies in this market are showing strong financial performance and we expect this success to continue.
Touchlight is an example of why healthcare is one of Downing Ventures’ key investment sectors: not only are they an innovative company enabling incredible healthcare developments, they are also creating significant value for shareholders, highlighted by their most recent fundraise.
Risk warnings: if contemplating an investment or investment service, investors should seek independent advice or make his/her own decisions as to the appropriateness of the investment or investment service. Investments of investment services referred to may not be suitable for all recipients. The suitability of a particular strategy will depend on an investor's individual circumstances and objectives. Past performance is not a guide to future performance. The extent and value of any tax advantages or benefits arising from the use of tax-advantaged services will vary according to the individual's circumstances. The levels and bases of taxation may also change. Past performance is not a reliable indicator of future results.
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