Frequently Asked Questions
FREQUENTLY ASKED QUESTIONS
The questions and answers below are intended to supplement information included in the brochure, KIID and Prospectus to help and further inform you on the Lowes UK Defined Strategy Fund. They should not form the basis of an investment decision but be read in the context of the fund literature.
The Fund targets a return each year in excess of Sonia + 5% over the medium-to-long-term in rising, stable or modestly falling UK equity markets. The fund aims to exceed the targeted return, while being less volatile than direct investment into UK equity markets.
If you are looking for capital growth over the medium-to-long term, then the Lowes UK Defined Strategy Fund could be the proposition you are looking for. The Fund is a diversified portfolio of defined-return investments based on known strategies, which aims to provide a consistent return in all but extremely negative market conditions.
The Lowes UK Defined Strategy Fund is a proposition that could add value to investors’ portfolios by complementing other traditional investments or structured investments for the following reasons:
1. The Fund trades daily, meaning it is much more accessible and liquid than retail structured products.
2. Maturities within the Fund do not give rise to capital gains tax charge liabilities.
3. The Fund has the flexibility to adapt to market conditions and take advantage of pricing during volatile periods.
4. The Fund manager deals directly with counterparty banks, eliminating provider charging and providing investors with more competitive pricing as a result.
5. The Fund’s investments are spread across a range of counterparties, strike, observation and maturity dates to create a much more diversified proposition.
The Lowes UK Defined Strategy Fund can be accessed through several investment platforms*. It is available as a direct investment (General Investment Account) or as part of a self-invested pension scheme arrangement (SIPP), Individual Savings Account (ISA) or an Offshore Life Bond.
* The fund is now available on Aegon, Aviva, Quilter, Embark, Transact, Seven IM, James Hay, Aegon ARC, IFDL (Funds Direct), FNZ Clear, AllFunds and Hubwise. If your preferred investment platform is not currently available, please get in touch.
ISAs and pension investments can be facilitated by the relevant investment platforms. If the Fund is held within an ISA or pension scheme, returns will be tax-free.
The minimum investment into the Fund is set by the investment platform manager. The initial investment may be as low as £1,000, while top-ups can be less.
The table below illustrates how the Fund would perform in specific market conditions:
|Underlying market conditions in the medium-to-long term||Impact on target return of Sonia plus 5%||Comment|
|Substantial rise||No change||The Fund will meet its objective, but it will probably not exceed the returns of an equity-based fund.|
|Modest rise||No change||The Fund will meet its objective but may underperform against an equity-based fund.|
|Slight rises or falls||No change||The Fund will meet its objective and should outperform an equity-based fund.|
|Modest fall||No change/slight underperformance||The Fund could meet its objective or slightly underperform; the Fund will probably outperform an equity-based fund.|
|Substantial fall||Underperformance||The Fund will probably not meet its objective and may be outperformed by an equity-based fund.|
The strategy of the Fund is based on those found in structured investments. Such investments have been a feature of the investment landscape since the late nineteen-eighties and have gradually settled on a form that offers investors a fixed return with reference to certain performance criteria, with the potential to mature early if certain market conditions prevail. In the UK, this is often based on the performance of the FTSE 100 Index, where the return would be triggered if the Index was, say, at or above its initial level on an anniversary date. Returns are pre-defined, fixed and accrue the longer the investment remains in force.
The investment managers at Lowes have been selecting the types of strategies included in the Fund for many years. The Fund builds on this concept and offers investors exposure to several investment counterparties and a range of potential durational returns, all linked to the performance of established market indices. The style of investment favoured by the investment managers is called the autocall or ‘kick-out’; although the term can be as long as ten years, it has earlier return trigger points whereby the investment return is crystallised and subsequently reinvested by the investment manager.
The strategies considered by the investment manager have been subjected to extensive back-testing analysis to ascertain how they would have performed had they have been available in the past. The actual performance data of the FTSE 100 Index is used in this analysis with data available since its inception in 1984, with each trading day as a hypothetical starting point.
A maximum ten-year strategy which could mature early on any anniversary from year one onwards, providing the FTSE 100 Index is at, or above 105% of its starting level.
This strategy contains a contingent capital protection mechanism whereby the investment will return full capital as long as the FTSE 100 Index closes at a level greater than 70% of its starting level. The capital protection mechanism will only be monitored at the end of the term, providing it has not matured early on one of the nine possible early maturity dates during the ten-year term.
A maximum eight-year strategy which could mature early on any semi-annual observation date from year one onwards, providing the FTSE 100 Index is at, or above 92% its starting level.
This strategy contains a contingent capital protection mechanism based on the index being greater than 60% of its starting level. As with Strategy 1, this will only be monitored at the end of the term, providing it has not matured early on one of the fourteen possible early maturity dates during the eight-year term.
The purpose of the table below is to demonstrate that, based on past performance only (which is no guide to future performance), the strategies deployed in two ‘preferred’ Lowes structured investment plans – and akin to the types of strategies that are used within the Fund – have shown considerable resilience in ensuring that capital is returned with an additional gain.
Number of market scenarios
Return of capital only
Positive investment return and capital returned
For almost two decades Lowes has played a leading role in helping to shape the UK retail structured product sector by championing good product development and governance, with a focus on investor outcomes. With a reputation throughout the UK as a structured products expert, Lowes has been actively and successfully using structured investments within clients’ portfolios, helping to achieve their financial planning goals. Lowes selects ‘preferred’ structured investment plans which enhance a client’s overall portfolio performance and over the last ten years to the end of 2021, the average annualised return provided by ‘preferred’ FTSE 100 linked capital at risk autocall plans, upon which the strategy of the Lowes UK Defined Returns Fund is based, has been 7.94% per year. Past performance is not a guide to the future.
The award-winning investment team involved in managing the Fund have many years of experience in assessing, selecting and managing similar investments to those that are included in the Fund.
All investments carry a degree of risk and it is vital that you understand and are willing and able to accommodate the risks associated with the Fund. All strategies contain contingent capital protection mechanisms to attempt to mitigate risk, however the fund value will vary according to market conditions and you could get back less than you invested. Particularly in the early years and in times of market stress.
The Fund is not designed to pay any income. The share class into which you invest aims to meet the needs of investors looking for medium to long term growth.
The progress of the Fund can be followed here, on the Lowes UK Defined Strategy website. The Fund is one of the most transparent on the market, keeping investors and advisers updated on key events. For a valuation at any time, please speak to your financial adviser.
You will agree any fees in relation to the advice you will receive with your financial adviser; this amount may be deducted by your investment platform manager prior to investment in the Fund and paid to your financial adviser.
There is no initial charge on investing in the Fund.
There are ongoing costs associated with the running and management of the Fund; this is called the ongoing charges figure (OCF). The OCF capped at 1% of the value of the assets within the Fund per annum. Within the OCF, there is the annual management charge, which is for the investment management of the Fund and is equal to 0.5% p.a. The daily price of the Fund reflects the deduction of the OCF.
There may be other fees to consider that are independent of the Fund, such as ongoing adviser and investment platform fees. Ask your financial adviser for more information.
Under current legislation any gain produced by the fund, when held outside of a tax shelter, will be subject to Capital Gains Tax rules. The current capital gains allowance for 2020/2021 is £12,300. For any gain that falls outside of the annual allowance within the tax year the investment is realised, these will be subject to tax at the prevailing rate which is currently 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. Investors would normally declare any tax liability through their annual self-assessment return.
The recommended minimum holding period of an investment in the Fund is at least five years. Whilst there is a risk of a capital loss, it is expected that this might be more prevalent in the early years of holding the investment, due to the extended terms of the underlying strategies.
The Fund is domiciled in Ireland domiciled funds and as such are not covered by the Financial Services Compensation Scheme. However, for all UK and EU authorised funds, the investments held within the Fund must be held separately from Lowes as investment manager by an independent trustee or depositary. This means that in the event of default by the investment manager all the Funds underlying investments will be secure. Please note, as is the case with any investment within any fund, should an investment become void, there is no recourse to seek redress.
The platform through which you made the initial investment will facilitate the sale of units. If the investment was made on a direct basis, Northern Trust will facilitate the sale of units.