Investors who think the returns from equities and bonds will continue to be well below average should consider the Levendi Thornbridge Defined Return Fund (the Fund). One of the benefits of the asset class is that we can generate positive return even when markets fall. That has been the case this year. Since the launch of the fund on the 31^st January to the 14^th of December the Fund is up 2.2% despite significant falls in major equity markets.

The Fund is one of several that invest in equity linked defined return investments, many of which have been launched recently. Although all the funds share the same strategy there are differences in the way the funds are managed that feed through to the way the funds perform.

The performance of the Fund has been at the top of the peer group since the launch date at the end of January 2018. To illustrate the relative performance, we have created a time series which represents the value of an equally weighted investment into each of the seven Funds which we regard as our peers.

 

Source; Bloomberg 18 Dec 2018

Tracking the performance of the Levendi Fund versus the Peer Group allows us to measure the spread between the Fund’s performance and the Peer Group’s average. The graph below shows the percentage difference between the Fund and the Peer Group average.

 

Source; Bloomberg 18 Dec 2018

Since inception, the Fund has outperformed the Peer Group by 3.56%. The Fund got off to a good start and since then the relative performance has improved through the Autumn as markets have dropped back.

The strong relative performance of the Fund versus the Peer Group can be attributed to the cautious way the Fund is managed:

1. The Fund only holds products with progressive risk and avoids barriers. While barrier or knock-in puts are an effective way to minimise the chance of loss at the maturity of the product, in the interim period they can result in a high level of exposure to markets when markets fall, as they have recently.
2. The Fund has exposure to the FTSE 100 and the Eurostoxx 50. There is no US, Japanese or other exposure. We remain wary about the level of valuation of US equities and the FANG stocks.
3. The capital value of assets held by the Fund is only at risk at maturity if the FTSE 100 and Eurostoxx 50 fall below the levels last seen at the depths of the Dot-Com crash and the Global Financial Crisis.
4. The increased level of realised volatility means that the risk management overlay has been activated. This is used to dampen down exposure to markets by offsetting a small portion of our market exposure with a short futures position. It has both had the effect of reducing the volatility and helping increase the level of the Fund NAV
5. The products we hold have very low final trigger or Autocall levels. This increases the chance of a positive return and reduces the mark-to-market volatility of the Fund.
6. We have used long-dated products. This allows more time for the Autocall conditions to be satisfied and gives markets more time to be above the put strike.
7. The Fund has very little exposure to changes in short term volatility and long-term volatility has remained relatively stable.
8. We look to implement the strategy as effectively and efficiently as possible, avoiding complexity and reducing cost wherever possible

CONCLUSIONS

The effect of the way that the Fund is managed is that the fund has accrued value steadily when markets have tracked sideways and has performed well by holding onto value when markets fall. This analysis illustrates how the fund has performed when markets have dropped.

Our cautious approach and focus on wealth preservation are a result of our detailed quantitative analysis of risk and return, and the needs of the target market. Time and again, our analysis demonstrate that it is the least risk products that offer the best risk/return profile.

 

 

 

DISCLAIMER

The contents of this document are communicated by, and the property of, Levendi Investment Management Ltd. Levendi Investment Management Limited Ltd is an appointed representative of Thornbridge Investment Management LLP which is authorised and regulated by the Financial Conduct Authority (“FCA”). The information and opinions contained in this document are subject to updating and verification and may be subject to amendment. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by Levendi Investment Management Ltd or its directors. No liability is accepted by such persons for the accuracy or completeness of any information or opinions. As such, no reliance may be placed for any purpose on the information and opinions contained in this document.  The information contained in this document is strictly confidential. The value of investments and any income generated may go down as well as up and is not guaranteed. Past performance is not necessarily a guide to future performance.