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 45 - A defensive FTSE 100 strategy with maturity trigger at 7471.51 points.
A maximum eight-year strategy that will mature in August 2023 or the first annual observation date thereafter that the FTSE 100 Index is above a reducing Reference Level. The Reference Level is 100% of the Initial Level (7471.51) in years one and two, dropping to 95% (7097.93) in years three, four, and five, and finally to 90% (6724.36) in years six, seven and eight.
Potential Return: 9.08% for each year the strategy is in force.
This strategy contains a capital protection barrier at 4856.48, 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: Credit Agricole
Strategy 54 – A non defensive FTSE CSDI strategy with maturity trigger at 167.98 points.
A maximum eight-year strategy that will mature in March 2024 or the first annual observation date thereafter that the FTSE CSDI is above 167.98.
Potential Return: 10.16% for each year the strategy is in force.
This strategy contains a capital protection barrier at 109.19 but as above it will only be observed at the end of the eight-year term if the strategy did not mature early.
Credit Exposure: Fully collateralised with short-dated gilts
Strategy 55 – A defensive FTSE CSDI strategy with maturity trigger at 178.66 points.
A maximum eight-year strategy that will mature in April 2024 or the first annual observation thereafter that the FTSE CSDI Index is at or above a reducing Reference Level. The Reference Level is 100% of the Initial Level (178.66) for years one and two, dropping to 95% (169.73) in years three, four and five, and finally to 90% (160.79) in years six, seven and eight.
Potential Return: 8.31%% for each year the strategy is in force.
This strategy contains a capital protection barrier at 116.13 but again, that will only be observed at the end of the eight-year term, providing the strategy does not mature early.
Credit Exposure: Fully collateralised with short-dated gilts
Indices for strategies: FTSE 100 Index and FTSE CSDI; additional information on the indices may be obtained here – https://www.ftserussell.com/products/indices/uk
The first of the strategies above is fully exposed to the continuing solvency of the counterparty bank that issued it. The Fund looks to reduce the impact of potential counterparty default by diversifying those strategies with counterparty exposure across various banks with investment-grade credit ratings. It will also utilise over the counter contracts which are then fully collateralised with short-dated gilts. This removes the counterparty exposure altogether on these strategies, as in the second and third strategies above.
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.
Further Information:
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.
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 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.
Viewing of the strategies can be accessed at: https://fund.lowes.co.uk/IFA/Portfolio