Lowes UK Defined Strategy Fund: Targeting Returns - Layering the strategies
The Lowes UK Defined Strategy Fund (the “Fund”) employs strategies utilising call options, put options; investment grade bonds, government bonds, and swaps, to formulate investment strategies, similar to that of structured notes, which is a type of financial derivative instrument. Some structured notes utilise and layer multiple call options within one note, to provide multiple opportunities to mature early. In doing so, using these strategies help the Fund to meet its objective of providing investors with capital growth over the medium-to-long term.
Lowes Investment Management Ltd, the investment manager to the Fund, will not aim to time the market, but market conditions will play a significant role in determining the shape of various strategies placed into the Fund. These will range from defensive shapes whereby maturity is triggered on a specified observation date by the underlying index used in the strategy closing above a specified percentage below the index position recorded at outset, to more optimistic strategies which require the index to rise by at least a specified percentage by a potential maturity date. The following are a selection of such strategies acquired by the Lowes UK Defined Strategy Fund. Whilst not representative of the whole Fund, they do show how different strategies may be constructed, and the conditions required to deliver the returns defined at outset of each. :
Strategy A – A defensive FTSE 100 trade with maturity trigger at 6049.05.
A maximum eight-year, six-month strategy that will mature in June 2021 or the first annual observation date thereafter that the FTSE 100 Index is above 6049.05.
Potential Return: 23.9% in June 2021, but if not, this is increased by a further 9.56% for each additional year the strategy is in force.
This strategy contains a capital protection barrier at 4032.70, meaning that if a maturity is not triggered, capital will be returned in full provided the index finishes above this level at the end of the eight-year term.
Credit Exposure: Société Générale SA
Strategy B – A non defensive FTSE 100 trade with maturity trigger at 6721.17 points.
A maximum nine-year three-month strategy that will mature in March 2020 or the first annual observation date thereafter that the FTSE 100 is above 6721.16. Potential Return: 16.60% in March 2020, but if not this is increased by a further 16.6% for each year the strategy is in force.
This strategy contains a capital protection barrier at 4704.82 but as above it will only be observed at the end of the nine-year three-month term if the strategy did not mature early.
Credit Exposure: Citigroup Global Markets Ltd.
Strategy C – A non defensive FTSE 100 trade with maturity trigger at 7197.77 points.
A maximum, ten-year strategy that will mature in January 2020 or the first annual observation thereafter that the FTSE 100 Index is above 7197.76.
Potential Return: 16.50% for each year the strategy runs.
This strategy contains a capital protection barrier at 4455.76 but again, that will only be observed at the end of the ten-year term, providing the strategy does not mature early.
Credit Exposure: Morgan Stanley
Index for each strategy: FTSE 100 Index; additional information on the index may be obtained here – https://www.ftserussell.com/products/indices/uk
The above strategies are fully exposed to the continuing solvency of the counterparty banks that issued them. The Fund looks to reduce the impact of potential counterparty default by diversifying counterparty exposure across various banks with investment-grade credit.
If you would like to know more about the Lowes UK Defined Strategy Fund, please visit the Fund website UKDSF.com/Literature for the Key Investor Information Document (“KIID”), Prospectus, and Supplement or call Lowes Investment Management on 0191 281 88 11.
This article is for information purposes only and should not be construed as advice. We strongly suggest you seek independent financial advice prior to taking any course of action.
The value of this investment can fall as well as rise and investors may get back less than they originally invested. Past performance is not necessarily a guide to future performance.
The Fund is suitable for investors who are seeking capital growth over a medium to long term horizon but who are willing to tolerate medium to high risks due to the potentially volatile nature of the investments.
The Lowes UK Defined Strategy Fund is a sub-fund of the Skyline Umbrella Fund ICAV and is regulated by the Central Bank of Ireland. The KIID, Prospectus, and Supplement can be accessed by visiting UKDSF.com/Literature and are only available in English.
Lowes Investment Management Ltd, Fernwood House, Clayton Road, Newcastle upon Tyne, NE2 1TL. Authorised and regulated by the Financial Conduct Authority.