End of year review 2024
Defined Returns Fund
This is a marketing communication for professional investors only. Capital at risk.
Past performance does not predict future returns.
This year marked the fund’s 11-year anniversary, having now delivered an annualised return of 7.13% since fully invested back in 2013, successfully delivering to clients its targeted return of 7-8%. The fund returned 6.5% in 2024, just shy of our 7-8% long term annualised return target. Having delivered 13.9% in 2023 and estimated to deliver 7.7% if equity markets are flat this year, the fund remains positioned to deliver to clients it's targeted long term return.
How did the year start?
Equity deltas and covers for the fund at Jan 1st 2023:
Past performance does not predict future returns.
Source: Atlantic House as at 01/01/2023
Average cover before capital loss
38.73%
Average cover to achieve a positive return
34.41%
How did the fund perform?
Past performance does not predict future returns.
Source: Morningstar 31/12/24 to 31/12/24
Past performance does not predict future returns.
Source: Morningstar 01/01/24 to 31/12/24
It has been another strong year for global equity markets, with US equities leading the way. The fund returned 6.5% in 2024, just short of the 7-8% return target. With a 13.9% return in 2023, the fund is well ahead of its return target over the last 2 years. These will likely be pleasing returns for Investors and inline with the returns we target for the fund. We also know that investors buy the fund for the predictability of returns, and we pride ourselves on our ability to fairly accurately forecast future returns given certain equity market moves.
You will likely have seen that on each monthly factsheet is a scenario analysis grid of how the fund is predicted to perform in the future given different equity market conditions. At the end of Dec 2023, the grid estimated that the fund would be up around 8.9% over the next year if markets were up 10% and 7.1% if markets were flat. Returns in the fund were held back by weaker performance from UK and European markets (6.7% and 5.7% respectively) and around 100bps was detracted from the asset swaps the fund uses to hedge out interest rate duration. This can be explained by the recent widening of gilt asset swap spreads.
Some background first. In order to buy the investments that produce the fund's return on capital, the 'autocalls', it must first do the return of capital part, whereby it buys gilts and enters into an asset swap on that gilt where the fund pays away the fixed rate received from the gilts in return for a floating rate. The purpose of this is to remove the interest duration that comes with owning gilts. On the floating rate side, the fund has been receiving the going overnight interest rate (SONIA) plus around 0.2%, and this has been quite stable for a number of years. The spread the fund receives over SONIA is driven by the spread between gilt yields and sterling interest rate swaps rates. If gilt yields rise relative to swap rates, the spread ‘widens’. Over recent weeks, the gilt asset swap spread has widened by about 0.2% such that buying a new asset swap would get the fund about SONIA plus 0.4% for durations of between 4 and 8 years. This is quite a considerable move. It means that the current asset swaps within the fund fall in value in line with this change. Around 80% of the fund is exposed to gilts with maturities of between 4 and 8 years and their associated asset swaps, and the weighted average duration is around 6 years.
So, the impact on the fund of this move is approximately 0.2% x 80% x 6yrs = 0.96%, i.e. around a 1% negative impact to the fund. However, this temporary loss will be recouped over time as the gilts approach maturity, or spreads tighten; the 1% will come back. What it also means is that terms for new asset swaps are attractive; in fact, the fund entered into one in November on which it received SONIA plus 0.5%. Looking forward we now expect the fund to deliver 10.16% net of fees total return if markets are up 10% over the next 12 months.
Past performance does not predict future returns.
Source: Atlantic House as at 31/12/24.
Did it offer downside protection?
Hitting our target return is, of course, important, but it’s just as critical to look at how the fund performed during periods of equity market drawdowns. The fund’s much lower drawdowns, reduced volatility, and low equity beta show just how effective the defensive barriers in defined return investments can be. The performance chart really brings this to life, showing the relatively smooth and steady journey the fund has provided for investors this year.
Performance of Fund and major equity indices
Past performance does not predict future returns.
Source: Morningstar 01/01/24 to 31/12/24
2024 August Wobble:
The equity market sell-off in August once again showcased the fund's defensive qualities. Hawkish actions by the Bank of Japan, along with weaker economic data from the US, triggered a 6.4% drop in global developed market equities. In comparison, the fund saw a much smaller decline of just 2.1%. Even with Japanese equities dropping as much as 20% at one stage, the Japanese exposure only reduced the fund’s overall performance by about 44 basis points. This result highlights the effectiveness of the fund’s protective barriers and the value of maintaining a well-diversified regional exposure.
Performance in the first 2 weeks of August 2024
Past performance does not predict future returns.
Source: Morningstar 31/07/24 to 14/08/24
What activity happened in the portfolio?
With equity markets hitting multiple all-time highs this year, the fund saw 34 autocalls redeem, which were then reinvested into 46 new positions. These new investments have final maturities staggered across the 2030 calendar year to help manage pin risk. The maturing autocalls delivered an average coupon of 8.74%, which we were able to sustain, with the new autocalls averaging 8.82%. The pricing environment remains favourable, though slightly lower rates over the year meant the average capital barrier on new investments has fallen slightly, from 62.85% to 63.86%, to maintain these attractive coupons. With an average coupon of 8.82% and a fund OCF of 64bps, we anticipate the fund will deliver returns at the upper end of its 7-8% target range.
Redemptions in 2024:
Source: Atlantic House as at 31/12/24
New Investments in 2024:
Source: Atlantic House as at 31/12/24
2023 Fund Reviews
What can investors expect from the year ahead?
As it stands, we believe the fund presents an excellent risk-reward profile for investors. The positive return and capital loss barriers, set at 32.26% and 36.62% respectively, provide a substantial level of downside protection. On the upside, the fund has the potential to deliver an 7.8% return in flat equity markets and 10.16% if equity markets rise by 10% over the next 12 months. Remarkably, even if equity markets decline by 10% over the next year, we project the fund to still deliver a positive return of 1.82%. More impressive is that if markets fall 20% and stay down, the fund is expected to deliver 6.34% over 3 years. The fund's delta is currently at 32.91%.
Average cover before capital loss
36.62%
Average cover to achieve a positive return
32.26%
The fund’s actual returns may differ from the estimates shown above and are subject to daily price movement. Future performance may also be subject to taxation, that could change in the future. The value of investments can go down as well as up and you may not get back the full amount invested.Past performance does not predict future returns.
Source: Atlantic House as at 31/12/24.
In conclusion, the Defined Returns Fund continues to deliver on its stated targeted return of 7-8% while maintaining the ability to offer significantly lower drawdowns and volatility compared to equity markets. As we look ahead, we remain confident in the fund's ability to continue providing investors with a stable and predictable investment experience, making it a valuable addition to any diversified portfolio.
This is a marketing communication. A comprehensive list of risk factors is detailed in the Risk Warnings Section of the Prospectus and the Supplement of the fund and in the relevant key investor information document (KIID) final investment decision should not be contemplated until the risks are fully considered. A copy of the English version of the Supplement, the Prospectus, and any other offering document and the KIID can be viewed at www.atlantichousegroup.com and www.geminicapital.ie. A summary of investor rights associated with an investment in the fund is available in English at www.geminicapital.ie.
Calculations do not consider credit spread movements of the issuers of the securities. The Mark to Market of the securities and therefore the NAV of the fund will decrease as credit spreads widen and vice versa if spreads narrow.
The value of investments and income from them can go down and you may get back less than originally invested. There is no guarantee that the Fund will achieve its objective. Past performance does not predict future returns. The level and basis of tax is subject to change and will depend on individual circumstances.
The fund invests in derivatives for investment purposes, for efficient portfolio management and/or to protect against exchange risks. Derivatives are highly sensitive to changes in the value of the asset from which their value is derived. A small movement in the value of the underlying asset can cause a large movement in the value of the derivative. This can increase the sizes of losses and gains, causing the value of a derivative investment to fluctuate and the fund could lose more than the amount invested.
The fund invests in high quality government and corporate bonds. All bonds will be rated at least A- by Standard and Poors at outset. If any of the bonds the fund owns suffer credit events the performance of the fund could be adversely affected.
Other risks the fund is exposed to include but are not limited to, credit and counterparty risk, possible changes in exchange rates, interest rates and inflation, changing expectations of future market volatility, changing expectations of equity market correlation and changing dividend expectations.
A decision may be taken at any time to terminate the arrangements for the marketing of the fund in any jurisdiction in which it is currently being marketed. Shareholders in affected EEA Member State will be notified of any decision marketing arrangements in advance and will be provided the opportunity to redeem their shareholding in the Company free of any charges or deductions for at least 30 working days from the date of such notification.
This is a marketing communication issued by Atlantic House Investments Limited and does not constitute or form part of any offer or invitation to buy or sell shares. It should be read in conjunction with the Fund’s Prospectus, key investor information document (“KIID”) or offering memorandum. Atlantic House Investments Limited is authorised and regulated by the Financial Conduct Authority FRN 931264. Atlantic House Investments Limited is a Private Limited Company registered in England and Wales, registered number 11962808. Registered Office: One Eleven Edmund Street, Birmingham. B3 2HJ.
The contents of this video are based upon sources of information believed to be reliable. Atlantic House Investments Limited has taken reasonable care to ensure the information stated is accurate. However, Atlantic House Investments Limited make no representation, guarantee or warranty that it is wholly accurate and complete.
This material may not be disclosed or referred to any third party or distributed, reproduced or used for any other purposes without the prior written consent of Atlantic House, any data provider and any other third party whose data is included herein and must be returned on request to Atlantic House and any copies thereof in whatever form destroyed.
A decision may be taken at any time to terminate the arrangements for the marketing of the Fund in any jurisdiction in which it is currently being marketed. Shareholders in affected EEA Member State will be notified of any decision to terminate marketing arrangements in advance and will be provided the opportunity to redeem their shareholding in the Company free of any charges or deductions for at least 30 working days from the date of such notification.
The Atlantic House Uncorrelated Strategies Fund is a sub-fund of GemCap Investment Funds (Ireland) plc, an umbrella type open-ended investment company with variable capital, incorporated on 1 June 2010 with limited liability under the laws of Ireland with segregated liability between sub-funds.
GemCap Investment Funds (Ireland) plc is authorised in Ireland by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No. 352 of 2011) (the “UCITS Regulations”), as amended.
Gemini Capital Management (Ireland) Limited, trading as GemCap, is a limited liability company registered under the registered number 579677 under Irish law pursuant to the Companies Act 2014 which is regulated by the Central Bank of Ireland. Its principal office is at Suites 22-26 Morrison Chambers, 32 Nassau Street, Dublin 2, D02 X598 and its registered office is at 7th Floor, Block A, One Park Place, Upper Hatch Street, Dublin 2, D02E762. GemCap acts as both management