15th February 2019

Risk/return analysis of defined return funds

There is now a broader range of defined return / defensive capital / defensive return funds available to investors. The sector continues to become more popular with investors. What all these funds have in common is that they aim to offer investors a steady return under a broad range of market conditions. They all achieve this through investing in similar assets. Older versions of these funds invested in Zero Coupon Preference Shares. Recently these have been complemented with synthetic versions of the same asset and then by other forms of defined return investments, notably Autocalls.

The use of defined return investments has given managers the ability to create assets specifically for their own fund. There are multiple issuers, pricing is typically very competitive, most investments have live prices, they are normally very liquid and can be independently valued.


The chart below illustrates the volatility / return of the peer group since 31 Jan 2018.


  • Our target market is lower risk investors that want a steady return under a broad range of market conditions. The target market aims to avoid losses and minimise drawdowns
  • We focus on capital preservation and look to minimize both the chance and scale of losses
  • We aim to maximise the chance of delivering the target return – LIBOR +6%
  • We only hold liquid, simple products linked to main equity market indices
  • We only hold products that are broadly traded that we can value ourselves
  • We hold notes where we can see that we are being adequately rewarded for assuming the risk that the issuer may default.
  • We use a risk management overlay to control the volatility of the fund when this is necessary


The range of defined return funds available now have a variety of investment objectives. This is reflected in the risk/return profile of these funds over the last year. The Levendi Thornbridge Defined Return Fund has been established to meet the needs of lower risk clients. The fund has delivered a positive return in the face of poor returns from equity markets.


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.