31 August 2023
The Fund fell by -0.43% in August, behind its performance comparator of cash (as measured by the Bank of England’s Sterling Overnight Index Average (“SONIA”)) +5% which rose by 0.84%. Year to date the Fund is up 3.33%, ahead of the UK equity market, as measured by the FTSE 100 total return index, which is up 3.02%.
(Source of all figures: FE Analytics)
UK equity markets were negative in August, although they did recover somewhat in the latter part from their lows in the middle of the month. Continuing high inflation and the threat of a recession weighed heavily initially, with the FTSE 100 total return index down by 5% on the 18th from the start of the month. A falling figure for the Consumer Prices Index however, and a report from the International Monetary Fund predicting the UK economy would see positive growth over the year provided some positivity and helped lift equity prices in the last two weeks. Not enough to wipe out fully the earlier losses however. Pleasingly, the Fund again provided some protection against the falls, never being down as much as the main index over the period.
Two strategies had observation points in the month. The first, strategy 44, was a gilt backed contract linked to the FTSE CSDI index. With the index higher than its strike level on the observation date, this strategy matured on its first anniversary, giving a gain of 8.61%.
The second, strategy 45, needed the FTSE 100 index to be higher than its strike level of 7,471.51 to also mature on its first anniversary. The index was down on the day, however, so moves on to its second observation point in a year’s time, with the index needing to be at or above the same level to mature then. If not, then it moves on to the next year at which point the level required for a positive return starts to drop. This strategy has a further seven possible maturity dates, and accumulates an additional year’s coupon each year in the interim.
Two new strategies were added in August. The first, Strategy 62, is slightly different from usual, as it makes use of the Fund’s remit to invest up to 20% in strategies linked to indices based outside the UK. A gilt backed strategy, it is linked to both the FTSE CSDI index and the Euro Stoxx 50 index, which measures the 50 biggest companies in the Eurozone. A maximum eight-year contract, it needs both indices to be at or above a reducing reference level on any anniversary to mature with a positive return, accumulating a 10% coupon for each year it is in force. It was felt that this level of coupon for a step-down contract was compensation enough for the additional risk of a second index on what is a small part of the portfolio.
Strategy 63 was also added, a structured note linked to the FTSE 100 index, with BNP Paribas as the counterparty, who have a credit rating of A+ from Standard and Poors. This strategy can mature on any six-month observation point from the second anniversary onward, as long as the FTSE 100 index is at or above 95% of the original strike level. In that event it will return the original capital plus a gain of 4.5% for each six-month period it is in force. The Fund was able to buy into this note slightly below par, enhancing the coupon on offer.
Further details of all the strategies within the fund can be found on the Fund’s website: www.UKDSF.com.
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.