Harnessing the Power of Equities
Marketing Communication for Professional Investor Use Only
Equities are the powerhouse of long-term, inflation-busting investment. But the ebb and flow of markets can mean even quite long-term investors miss out on the average long-term annual returns of 7% that may be achieved. The Atlantic House Defined Returns Fund increases the probability of your investors harnessing the power of the equity risk-premium within their investment time horizon.
For more than 100 years entrepreneurs, investors, speculators and cads have all sought to exploit and market asset classes that promise to beat equities. But from tulips to cryptocurrencies none have so far shown the same capacity to beat inflation over the long-term with the consistency of a diversified portfolio of shares.
Indeed over the last 121 years equities have made an annualised real return of 5.3% for US dollar investors. In comparison bonds have made 2.1% and US Treasury Bills 0.8%. Investors have been paid a premium of 4.4% a year for the risk taken by buying equities rather than holding cash. Source: Credit Suisse Global Investment Returns Yearbook 2021. Such a return when compounded for investors is a powerful force, perhaps the most powerful force creating wealth in the world. It is the bedrock of every multi-asset portfolio and the fuel for every financial adviser’s plan.
However, few investors have a 121-year investment time horizon. The challenge for equity investors remains the volatility. Whilst as an industry we work hard to tell investors in accumulation that they should not overly fret about short-term volatility the unfortunate truth is that even investors with relatively long time horizons can lose out investing in equities.
An investor in UK large cap shares for example who happened to own shares for the worst rolling annualised five year period since 1986 would have made an annualised return of -3.7% and over the worst rolling annualised ten year period they would have earned -2.5%. Source: Atlantic House/Bloomberg, total return of UK large caps in GBP 01/01/1986-31/08/2021.
Investors could own UK large-cap shares for as much as 30 years and still fall short of an annualised long-term return of 7% p.a.
IT’S POSSIBLE TO INVEST IN EQUITIES AND STILL NOT GET AN ATTRACTIVE LONG-TERM RETURN
Worst annualised rolling total returns for UK large caps over different holding periods
Past performance does not predict future returns. Source: Atlantic House/Bloomberg – total return in GBP,- 01/01/1986 – 31/08/2021.
There will of course be some investors for whom the idea of an annualised 7% return is not enough. They believe they can consistently make far in excess of the equity risk premium. However, for the vast majority of investors the opportunity to lock this risk premium into their future financial plans is highly attractive. In a sense it is the broken promise of passive investment. Passive investing offers the risk premium but there is no guarantee that the holding period an investor can commit to will coincide with the period equities will deliver the appropriate return.
There is a response to this problem. The Atlantic House Defined Returns Fund aims to deliver an annualised return of 7% over the long-term in all but the bleakest market conditions.
Indeed, for it not to be achieved the UK large cap market, or one of the other large developed market indices to which the Fund is exposed, would have to fall by around a quarter and not recover over the long-term (6 years). For context, the only prolonged drop of this sort seen by the UK large caps market over the past twenty years was 30.0% in the years around the dot.com bubble. (Source: Atlantic House/Bloomberg 01/01/1990 to 30/07/2021).
This does not mean of course that such a loss could not be experienced, none of us can know the future. However, an investor may well be willing to accept the risk of that scenario – in which event their holding in the Atlantic Defined Returns Fund would fall along with the equity market – in order to lock in a far higher probability of harnessing the power of the equity risk premium within the timeline of their investors.
MORE POSITIVE YEARS OF PERFORMANCE
An investment in AH Defined Returns Fund has produced more positive years of performance over multiple rolling 6 year periods than a similar investment in UK large caps – increasing the probability that review conversations with your clients will be more comfortable, even in slightly falling or flat markets.
In rapidly rising markets, the Defined Returns Fund will not keep pace with UK large caps but should still achieve its 7% pa annualised target.
Past performance does not predict future returns. Source: Atlantic House Monthly rolling annual periods of Atlantic House Defined Returns Fund B acc shares compared to UK Large Cap (Solactive) NTR in GBP. 01/11/2014 – 31/08/2021. Solactive (Note data period is since first annualised return for the Fund).
We would be delighted to tell you more about how the Atlantic House Defined Returns Fund has been able to deliver more positive years of performance than UK large caps or how we are able to estimate the future returns for the Fund in different market scenarios and over time. If you would like to discuss any aspect of the Fund you can contact us here.
KEY FUND RISKS
Past performance does not predict future returns. 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.
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 here and on the Gemini Capital website. A summary of investor rights associated with an investment in the Fund is also available in English at www.gemincapital.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 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.
This document is 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 document 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.
The Atlantic House Defined Returns 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 Ground Floor, 118 Rock Road, Booterstown, A94 V0Y, Co. Dublin and its registered office is at 1 WML, Windmill Lane, Dublin 2, D02 F206. GemCap acts as both management company and global distributor to GemCap Investment Funds (Ireland) plc. GemCap UK Limited (FRN 924419) is an appointed representative of Connexion Capital LLP (FRN 480006), which is authorised and regulated by the Financial Conduct Authority and provides distribution oversight services to GemCap acting as global distributor and is responsible for the oversight of all distribution arrangements for the sub-fund.
The Fund is not sponsored, promoted, sold, or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either regarding the results of using the Index and/or Index trademark or the Index Price at any time or in any other respect. The Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the issuer, Solactive AG has no obligation to point out errors in the Index to third parties including but not limited to investors and/or financial intermediaries of the Fund. Neither publication of the Index by Solactive AG nor the licensing of the Index trademark for the purpose of use in connection within the Fund constitutes a recommendation by Solactive AG to invest capital in said Fund nor does it in any way represent an assurance or opinion of Solactive AG regarding any investment in this Fund.