THE DOWNEY FUND

This page provides important information about our discretionary fund management service and the Downey Fund.

Please read the document carefully. It will help you decide if the Downey Fund is suitable for you.

Introduction

As at 31 May 2009, there were $30 trillion of debt worldwide. Individual savings amount to $100 trillion. Paramount care needs to be taken with these savings if individual confidence is to be restored.

In the current uncertain economic climate, it is important to be aware of all the opportunities available for planning your retirement. These include personal pensions, stakeholder pensions and self-invested personal pensions (SIPPs). Whereas SIPPs were once perceived to be the domain of more affluent individuals, or sophisticated investors, the wider range of investments available through a SIPP means that they are becoming increasingly widespread.

Investment in individual personal pensions and stakeholder pensions is limited to a ‘buy and hold’ strategy, hence it is possible only to make profits in rising markets. Such ‘investments’ are usually into funds offered by a Life Office. However, a SIPP can invest in many financial instruments, but not residential property. Most importantly, it can make profits in a rising or a falling market. Approximately 50% of our trades are short, accounting for 50% of our gains. Your understanding here is critical. Going short, or short selling, involves borrowing something, selling it and then buying it back later. A full list of permissible investments can be found in Appendix 1.

Aims of our Discretionary Fund Management Service

• To help you to save for your retirement, taking advantage of the tax privileges available,

• To provide benefits in retirement for you and/or your dependants,

• To enable you to switch your existing pension benefits (with certain exceptions), and

• To provide lump sum and pension benefits for your dependants following your death.

Conventional Advice

Increasingly we are taking on new clients whose pensions have suffered from the type of advice usually provided. The main features of that advice are:

completion of a Fact Find to record all your personal circumstances, including existing policies,
thorough discussion and analysis of your attitude to risk,
choice of funds given their previous performance and according to your risk profile, and
an undertaking to review on an annual basis.

We subscribe only to (i) and (ii) above because:

funds from Life Offices generally under-perform, though external links are better (which is why the Life Offices offer them in the first place!),
there is no way that an annual review coincides with changes arising on the other 364 days,
the nature of risk changes during the year. For example, in 2008 Skandia’s monthly magazine Informer listed property funds under scale risk 2 (i.e. very low risk). In the May 2009 Informer magazine, Norwich Property (now called Aviva Investors Property) is still scale risk 2, but lost 28.22%. Aberdeen Property Share has moved to scale risk 6, having lost 48.55%.
we monitor the Skandia funds daily using a special computer program. This service is available separately, and
for SIPP members, potential trades are being analysed and executed daily.

It is agreed that pensions are a long-term investment. However, we maintain that successful long-term performance depends on a series of short-term gains. Those who have lost money, including sadly many professionals, are trying to comfort themselves by declaring that they “are in it for the long term”.

Component Parties

There are five component parties to our SIPP, set out in order of priority:

1. You, as our client,

2. The Downey Fund,

3. We, as your advisor,

4. MYSIPP Trustees Limited, as the Trustee,

5. Berkeley Futures Limited, as brokers.

All funds not being traded will be held on deposit.

What is the Downey Fund?

The Downey Fund is a specialised investment fund run by Shaun Downey. It is available to our clients with a SIPP arranged through MYSIPP.

Shaun Downey

Shaun has been trading for nearly 30 years. He is a world-renowned and respected trader. He has presented seminars to and tutored top traders all over the world, including those at large banks and major oil companies. He has self-published his own book and has been ‘grandfathered’ into the Society for Technical Analysts (STA) for his contribution to the industry. He has successfully traded funds from as little as £25,000 to £1 billion. He remains Global Head of Technical Analysis at CQG. Further information on Shaun can be found on our website, under the ‘Meet The Team’ tab.

MYSIPP Limited

MYSIPP is a self-invested personal pension scheme offered by MYSIPP Limited. MYSIPP has the following advantages:

There is a Master Trust. The member is not a trustee (as with many other providers). This reduces a very considerable amount of delay and paperwork when setting up. It also simplifies instructions.
Most SIPP providers have a fee structure based on an individual doing all sorts of individual activities e.g. buying shares, using more than one stockbroker, having commercial property, etc. MYSIPP recognises that we have one fund being traded with an exposure to risk of between 1% and 10% of a client’s fund. Not only does this vastly reduce risk, it also reduces administrative effort, which is reflected in reduced administration fees.

Berkeley Futures Limited (BFL)

BFL has been offering dealing services in derivatives since 1986. The Company is privately owned, with 19.9% of shares being recently purchased by Macquarie Bank.

Initially focusing on Futures and Options, BFL quickly expanded its product range to include Foreign Exchange (Forex or FX), Contracts for Difference (CFDs) and Bullion. In April 2000 Berkeley Equities was established, which provides stockbroking and Initial Public Offering (IPO) services across international stock markets. BFL’s professional service, together with a broad range of product coverage, allows it to remain a market leader in the provision of broking services. BFL is authorised and regulated by the Financial Services Authority, is a member of the London Stock Exchange and the Futures and Options Association. If you have any queries here, then please contact Sebastian Jones, Associate Director, on 020 7758 4777.

The Downey Fund Trading Strategy

We will manage your portfolio on a discretionary basis. We take great care over the selection of trades. We pursue a strategy for trading, rather than investing. Shaun and Robert Gray do the analysis and Shaun does the execution, i.e. the actual buying and selling. In the event of an emergency, Robert and Ian Gray are authorised to close trades.

The essential features are:

we are not using your whole fund;
any single trade would involve risking a portion of your fund. The amount at risk can be graduated between 0.1% and 1% of your fund;
we are placing only those trades which have a high probability of profit;
stops are placed on all trades, below the entry price if the trade is long, above the entry price if the trade is short. Any movement in a trade can be protected by ‘a trailing stop’. If the price falls or rises, and touches the stop, the trade is immediately closed. Only in very exceptional circumstances might the stop not work. Over the last ten years, Shaun has encountered this three times, one of which was 9/11. In these exceptional circumstances, the maximum loss would be the total of your margin account;
we permit a maximum of ten consecutive losses. If this situation were to arise then it would trigger a withdrawal and re-appraisal. The maximum number of consecutive losses suffered to date has been six;
trades involve a margin account of 15% to 20% of your fund, but this will also be earning interest;
we allow a maximum number of ten trades to be open at any one time. This can only be exceeded if we have locked in profit on other existing trades. Each trade usually involves a number of identical contracts. Contracts, either long or short, may be sold or bought to take “money off the table” (i.e. realise profit) or to add to a position. Closing contracts early in a trade is a means of reducing the initial risk of the trade and potentially locking in profit;
we are trading with one fund in the name of MYSIPP, whose account has been opened with BFL. This is totally different from most SIPP providers who require separate accounts for each client. This means that:

(a) if clients traded individually, they would pay dealing costs per whole contract – our way BFL’s dealing costs are applied proportionately for each fraction of a contract held, and

(b) we have developed a program to allocate automatically on a daily basis profit or loss to each client, depending upon his/her size of fund and his/her percentage of the fund which he/she chooses to be exposed to risk. The documents explaining this program run to 30 pages. Robert has prepared a summary in Appendix 2.

Attitude to Risk

We are required by the Rules of the Financial Services Authority (FSA) to identify and record your attitude to risk. The information set out below is repeated in a separate form. It is included here so that you may consider your attitude to risk.

The service which we provide involves trading only when there is a high probability of success. There is only one model for the trading. This model fund involves only one nature of risk. The factor which needs to be assessed is your attitude towards how much of your own pension fund you wish to be exposed to this risk at any one time. We need your initial choice from the last column. The percentages shown here refer to the proportion of your total fund to be risked, not the amount to be risked on any one trade.

You may wish to start at a low level of risk and move progressively upwards as you see the results on your funds, or downwards if you become more cautious. You are welcome to make such moves at any time, subject to letting us know in writing or by e-mail.

CATEGORY	DESCRIPTION	PERCENTAGE TO BE RISKED
Low	I am cautious and dislike risk. I prefer security of capital and predictable investments. I accept this may result in a lower rate of growth on my fund.	1%
Below Average	I am prudent in my outlook. I am prepared to accept a limited degree of fluctuation in the value of my capital in return for improved long-term results.	2.5%
Average	I regard myself as a balanced investor. I am prepared to accept a degree of fluctuation in the value of my capital in return for the potential for good long-term results.	5%
Above Average	I am prepared to accept a higher than average degree of risk in return for achieving above average long-term results.	7.5
High	I am willing to accept a high level of risk in relation to my fund.	10%

Exposure to Risk

You decide how much of your total fund is to be exposed to risk. The minimum is 1%. If this is chosen, then only 0.1% of your fund is exposed to risk in any one trade. There is a graduated range of choice up to a maximum of 10%, meaning that no more than 1% would be exposed to risk on any one trade. When considering if the Downey Fund is suitable for you, please reflect on the following statements:

The value of your fund may fall as well as rise.

You are an experienced investor and are happy to use the Downey Fund.

You are not an experienced investor, but you consider the Downey Fund to be suitable for you.

All investments involve a degree of risk and returns can never be guaranteed.

Appendix 1

Permitted Investments

When you nominate a fund manager, MYSIPP Trustees Limited (the Trustee) will enter into a Fund Management Agreement (FMA) with them. This FMA will give details of the types of investments into which the fund manager is allowed to enter on your behalf. It is the responsibility of any appointed fund manager to ensure that only Permitted Investments as specified in the FMA are purchased by your fund manager. The Permitted Investments include:

• stocks and shares traded on any recognised stock exchange including:

equities,
fixed interest securities issued by governments or other bodies,
debenture stock and other loan stock,
warrants (for equities),
permanent interest bearing shares,
convertible securities,

• futures and options traded on any recognised stock exchange whether commodities, foreign exchange, equities or bonds, using either long or short positions,

• Exchange Traded Funds (ETFs),

• Contracts For Difference (CFDs),

• shares in investment trusts purchased and held through investment trust savings schemes or investment plans operated by persons

resident in the UK and authorised for that purpose under the Financial Services & Markets Act (FSMA), or
resident outside the UK but subject to regulation for that purpose in terms of the FSMA,

• open ended investment companies (OEICs),

• deposit accounts with any authorised institution in any currency,

• depository interests (including CREST depository interests).

All the above are Permitted Investments to the extent that they do not constitute “Taxable Property” within the meaning of part 2 of schedule 29A of the Finance Act 2004 (as amended from time to time).

A recognised stock exchange shall have the meaning as in section 841 of the Income and Corporation Taxes Act 1988 (as amended from time to time).

Shaun intends to trade mainly in indices, bonds, foreign exchange, shares and commodities. He will not trade anything which breathes. This rules out live cattle and pigs with assorted fever and flu.

Appendix 2 Trade Reconciliation and Management System (TRMS)

1. End of day profit or loss is known at Berkeley Futures Limited (BFL) about 2.00 am the following morning.

2. TRMS logs into BFL’s Client Facing Portal (CFP) at approximately 4.00 am.

3. TRMS locates the pdf document of the previous day’s statement.

4. TRMS saves this document.

5. TRMS converts it to text and parses* it for upload into the database.

6. TRMS will find the value of open and closed positions, as well as the value of the Downey Fund itself (from the information uploaded from the parsed pdf document).

7. Trade profit or loss will be calculated by subtracting the value of the trade at the open of the day (or the open of the trade, if this falls within the day) from the value at the close of the day (or the close of the trade, if this falls within the day).

8. The total profit or loss for a client from a particular trade is calculated by multiplying the total profit or loss from the trade as a whole by the percentage which the client has of that trade.

9. A client’s holding is then calculated as being the sum of:

Current account (initial transfer plus contributions or minus drawdown)
Profit (or loss) from trading
Traded (amount put into a trade which cannot be lost if the trade is stopped)
Risk (amount which is currently being risked on any trades)

10. The amount which any client wishes to trade is then calculated by multiplying the size of their fund by their attitude to risk.

11. The maximum amount which will be risked on any one trade on the Downey Fund is the sum of all the amounts obtained in 10 above.

12. TRMS e-mails this figure to our office and to Shaun.

13. TRMS will e-mail all the clients’ fund values to MYSIPP on a monthly basis.

* In computer science and linguistics, parsing, or, more formally, syntactic analysis, is the process of analysing a text made of a sequence of tokens (e.g. words) to determine its grammatical structure with respect to a given (more or less) formal grammar.

If this is of interest, please contact us.