SRP reviewed how the various funds of structured products performed in September and Q3 2023.
In the second of a three-part roundup, we review funds from the UK and Australia.
Levendi Thornbridge Defined Return Fund
Levendi’s fund comprises of a diversified portfolio of defined return investments linked to major market equity indices. It aims to maximise the chance of generating an average medium-term annual return of six percent above GBP deposit rates.
Reports of a potential ISA shake up could boost demand for UK equity and meaningfully push valuations higher - Matthew Robinson, Levendi
September saw the fund’s reference markets diverge as UK equities logged a 2.27% gain, while European and US equities logged a 2.85% and 4.87% loss, respectively. Against this backdrop, the fund increased by one percent whilst its year-to-date performance, at 8.53%, is also positive.
In the UK, the fund’s highest exposure, the very close vote by the Bank of England to pause increasing rates any further, was welcomed by the markets, with the UK’s post-pandemic recovery being revised much higher – two percent bigger than previously estimated and roughly in line with G7 nations – a welcome reversal, according to Matthew Robinson, head of business development at Levendi Investment Management.
“Even more importantly, reports of a potential ISA shake up could boost demand for UK equity and meaningfully push valuations higher,” said Robinson, adding that the fund remains “uniquely well positioned to take advantage of any further UK equities outperformance”.
The fund saw £15.9m in notional mature early during the month, returning anywhere from eight to 38%. Of these, the majority were notes and the proceeds were rolled into products yielding up to 9.1% pa, all in the gilt-backed format. This slashes the credit exposure of the fund to circa a third of that of only a month ago, with the current figure of 5.6% expected to go even lower the following months.
Levendi Thornbridge Defined Return Fund has £108.6m (€124.8m) assets under management (AuM). The fund was launched on 31 January 2018. The minimum subscription is £5m for institutional investors (B-Class) and £1,000 for retail investors (A-Class). There is an annual management charge of 60bps (B-Class) and 75bps (A-Class & I-Class). The net asset value (NAV) as of 30 September 2023 is £1.2955 (B-Class Accum); £1.2654 (A-Class Accum); £1.2438 (A-Class Distrib).
This fund developed by Investec Wealth & Investment and Protean Capital aims to generate income and capital growth through investments in structured products linked to major global equity markets.
Under current market conditions, the manager anticipates annual income of circa 4.25% to 4.75% and annual capital growth of circa 2-4% over the longer term. In September, the fund held 58 structured products, including a Barclays FTSE Income Note 06/28 (3.33% of the fund), a Cacib FTSE Income Note 05/28 (2.86%), and a Santander UK Covered Bond 01/28 (2.70%).
VT Protean Capital Elder Fund has £92.9m (€106.5m) AuM. The fund was launched on 30 August 2017. The minimum subscription is £2m for institutional investors and £100 for retail investors. There is an annual management charge of 50bps. Key investor information risk and reward profile: four out of seven. NAV as of 29 September 2023: 122.0118p (Class A – Accumulation).
VT SG UK Defined Return Assets Fund
Another fund from Valu-Trac (VT), the VT SG UK Defined Return Assets Fund is sponsored by Société Générale and will seek to achieve its objective – generating capital growth over the long term – primarily via exposure (indirectly by way of a swap) to a portfolio of defined return investments.
The portfolio is composed of 12 rolling up to six-year autocalls (each of which will have a potential maturity date on a different calendar month each year) which are designed to provide a defined return if the FTSE 100 is at, or above, a predefined level on a specified date.
During September, the fund returned +0.98%, relatively lagging the recovery in the FTSE 100 Total Return Index on a relative basis which rose by 2.40%. The fund’s performance since the start of the year, at 3.40%, was also positive.
The indicated gross redemption yield at the end of September increased slightly to 8.10%. During the month, the September leg triggered with a new coupon of 6.75%, a slight reduction to the outgoing September coupon of seven percent. The October leg is also set to potentially trigger.
The average time to maturity currently is 1.64-years. At current market levels, all the autocallable investments are likely to call between now and three years.
VT SG UK Defined Return Assets Fund has £21m (€24.1m) AuM. The fund was launched on 31 January 2018. The minimum subscription is £5,000. There is a management charge of £35,578 pa (chargeable to the fund) +0.375%. Key investor information risk and reward profile: five out of seven. NAV as of 29 September 2023: 124.6747p (Class A).
Schroder Income Maximiser Fund
The fund’s objective is to provide income and capital growth by investing in equity and equity-related securities of UK companies.
It targets an income of seven percent per year, but this could change depending on market conditions. The fund benchmark’s itself against the FTSE All Share Total Return Index and IA OE UK Equity Income Index. Its cumulative performance for September was 2.6% compared to 1.8% and 1.3% for the respective benchmarks. Year to date, the fund has returned 6.1%. Currently it has 44 holdings.
Schroder Income Maximiser Fund has £715m (€820m) AuM. The fund was launched on 4 November 2005. The minimum initial subscription is £1,000 or monthly instalments of £50. There is an ongoing charge of 1.66%. Key investor information risk and reward profile: six out of seven. NAV as of 30 September 2023: £1.3150.
The Australian domiciled fund aims to deliver monthly income with higher returns than investment grade bonds and lower downside risk than equities.
The fund’s strategy will primarily focus on structured products with defensive capital-preservation attributes. As a compliment to the primary strategy, the fund allocates between 20-40% of its assets to a selection of fixed-income managers. Its target return is equal to the Reserve Bank of Australia (RBA) cash rate plus 4%.
The Stropro Global Income Fund was launched on 30 June 2023. The minimum investment is AU$50,000 (€29,935).
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