Defensive By Design Series: Part 1: Long Term Investment
In this multi-part series, our UK Business Development Manager, Tara Pain, describes how the Levendi Thornbridge Defined Return Fund is truly defensive by design. This approach allows the Fund to generate positive real returns in all but significant and sustained market declines, offering investors meaningful protection for their portfolios.
Long Term Investments
Imagine you are an investor in an Autocall product and have reached the end of the product’s maximum investment term. Either the conditions for the product to kick out have not been met, or the level of the worst-performing index is below the capital protection level. If you had the option to extend the term for an additional year or two, would you accept? For most investors, the answer is yes - they would accept the extension to gain a few more chances for the holding to autocall.
Extending the term of the holdings held within the Levendi Thornbridge Defined Return Fund (the Fund) from the standard 6 years to 10 years improves the investment’s risk/return profile. While a longer investment term provides an uptick in potential returns, it also offers more opportunities for a positive return to be paid and for the underlying indices to close above the capital protection level. Historically, business cycles have not lasted longer than 6 years, so the probability of a sustained 10-year market decline is low.
Analysis conducted by the Fund’s Portfolio Managers using a risk analysis tool, confirms this hypothesis and shows that extending the maturity of the holdings can offer higher returns in the form of increased coupons - without requiring any material increase in risk.
Additionally, the tool provides analysis on how extended maturities affect Expected Duration, and the results are noteworthy. While the average duration of a 6-year product is approximately 2.5 years, extending the term to 10 years results in only a marginal increase - to 2.75 years - due to the high probability of the holding autocalling within the first few years of its life.
Overall, the Fund offers investors a significant degree of capital protection, designed to support both wealth preservation and growth. This is made possible, in part, by extending the term of the holdings the Fund holds. Investors gain equity market exposure that can generate positive real returns in all but significant and sustained market declines. Consequently, the Levendi Thornbridge Defined Return Fund is truly defensive by design.
If you want to learn more about this Fund and our other defined outcome funds, email us at funds@causeway-securities.com
Important information
This is a marketing communication, not a contractually binding document. Please refer to the Fund Supplement and to the KIID, and do not base any final investment decision on this communication alone.
This publication is intended to be Causeway Securities own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell, or trade-in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price, or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice, you should contact your financial adviser.
As with all forms of investment, there are risks involved with structured products, including those on our website.
It should always be understood that:
- Structured products are not suitable for everyone
- Past performance is not a reliable indicator of or guide to future performance and should not be relied upon, particularly in isolation
- The value of investment and the income from them can go down as well as up
- The value of structured products may be affected by the price of their underlying investments
- The potential returns of a structured and the repayment of money invested in a structured product depend on the financial stability of the Issuer and Counterparty
- Capital is at risk and investors could lose some or all their capital
Causeway Securities incorporates Causeway Securities Ltd, authorised by the UK Financial Conduct Authority, and Causeway Securities LLC, a subsidiary of Causeway Securities Ltd, granted FINRA membership in July 2022 to conduct business in the US.
Causeway Securities Limited is authorised and regulated by the Financial Conduct Authority (FCA FRN 749440) in the UK and is an authorised financial services provider in terms of the Financial Advisory and Intermediary Services Act (Act No. 37 of 2002) in South Africa. Causeway Securities Limited is registered in England and Wales with company number 10102661. Registered address Causeway Securities, 60 Cannon Street, London, England, EC4N 6NP. Causeway Securities Ltd is the parent company of Levendi Investment Management. Levendi Investment Management Ltd (FRN: 783607) is an appointed representative of the Investment Manager Thornbridge Investment Management LLP (FRN: 713859), which is authorised and regulated by the Financial Conduct Authority.
