Levendi has rolled out its first structured fund aimed at investors seeking a target return while controlling volatility and looking to minimise the chance and scale of losses. The Levendi Thornbridge Defined Return Fund is an undertakings for collective investment in transferable securities (Ucits)-compliant offering that aims to provide capital growth over the medium term. The product offers a distribution share class that provides an annual income of 5% and seeks to generate a return of 6% over UK sterling Libor with less volatility than global equity markets.
The sterling-denominated fund is an Irish domiciled Ucits - approved by the Irish Central Bank on January 10, 2018 - and has already raised £60m in seed capital, according to Frank Copplestone (pictured), chairman and managing partner at Levendi. "The fund will be primarily investing in global equity indices," said Copplestone. "The strategy of the fund is to aim to maximise the probability of achieving the target return while seeking to minimise the risk of [net asset value] drawdown.
"We are focused on optimising the portfolio composition by analysing a CVar95 risk measure, coupled with an assessment of the chance of achieving the target return," said Copplestone. "Additionally, we may incorporate a risk management overlay mechanism, which may be activated if markets enter periods of heightened uncertainty and increased volatility. Likewise, the overlay mechanism may facilitate opportunistic hedging in periods of out-performance and low implied volatilities."
The fund has three share classes, including an institutional accumulation share class which has 60bps as an annual management fee, and two retail share classes - one accumulation and one distribution. The retail distribution share class pays a 5% return pa, while the counterparty exposure limits follow the Ucits 5/10/40 rule, meaning that the fund can only have up to a 10% exposure to a maximum of four issuers - the maximum exposure to additional issuers is 5%.
Most of the assets held by the fund are a combination of, but not limited to, autocalls, supertrackers and synthetic zeros, according to Copplestone. "We use estimates of the risk and return of major capital markets," said Copplestone, adding that by using such estimates, the firm can quantify the risks and returns of each product considered for the portfolio.
The company uses the results of this analysis to compare products and benchmark to the risk and return profiles of conventional portfolios consisting of a mix of equities and bonds, according to Copplestone. "Such investments may offer attractive returns that do not depend on an increase in the value of the underlying markets," said Copplestone. "We create a shortlist of optimised products that offer an attractive mix of risk and return and which adhere with our investment objectives.
Portfolio optimisation takes into account the requirements to ensure that the fund has appropriate diversification across issuers, product types, assets and markets, according to Copplestone. "Our edge may be that we look at products from a perspective of enhancing the risk-return measures (Cvar95 and CAGR) with the aim of achieving an absolute target return," said Copplestone. "It is likely that any excess return, above the target level, would be used to de-risk the portfolio in favour of solidifying the potential of achieving the target return."
Copplestone also said that the company is about to sign an exclusive retail distribution agreement with a major distributor of retail structured products as demand for structured funds increases. "We see notable demand and potential for growth for structured product portfolios sold via the Ucits wrapper," said Copplestone. "We have seen notable successes in emergence of Ucits structured products funds. The regulatory environment has made it increasingly challenging for independent financial advisors to sell structured products. The fund provides an attractive alternative, because it is a regulated Ucits fund that invests in structured products and for many advisers this may prove to be an easier and safer proposition to clients."
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