VT Chelsea Managed Funds: third anniversary round-up

12 June 2020 - The VT Chelsea Managed fund range marked its third anniversary earlier this month, posting solid returns for investors over what has proved to be an eventful few years.

Launched on 5 June 2017, initially for clients of Chelsea Financial Services, the funds have attracted £86m of assets. The economies of scale have been passed on to investors and the range is amongst the cheapest multi-manager funds available.

Here, Darius McDermott, investment adviser to the range, reflects on the past three years.

VT Chelsea Managed Monthly Income

“The most popular fund in the range, VT Chelsea Managed Monthly Income, was designed to meet a very specific and growing need of our clients: a regular monthly income and the potential for dividend growth. We had hoped to deliver a yield of around 4%, and happily this has been achieved and even surpassed in each of the past three years and performance has been strong.

“Clearly, with a swathe of dividend cuts globally, it is unlikely we’ll be able to grow the dividend next year, but we are working very hard to maintain - or at least be very close to - the current level in the coming months. The beauty of a multi-asset fund such as this is that it doesn’t rely solely on one asset class or geography for its income and the diversified sources of income it has at its disposal mean alternatives can be sourced and the income is more robust.

“This fund has benefitted from investments in a number of specialist income-producing investment trusts over the past three years – including those investing in specialist property, infrastructure and renewable energy - and being able to access institutional placings of these vehicles, which are not open to retail investors. The subsequent active management of holdings in these trusts has added significant value to the fund’s overall performance.

“Individual fund selection has also added value, with M&G Emerging Markets Bond, Man GLG Income and Montanaro UK Income notable contributors.

“Some asset allocation on the other hand has detracted: at launch the fund had an overweight exposure to targeted absolute return funds, as the team felt fixed income was too expensive and yields unattractive. This hurt performance a little, but the fund still outperformed its reference sector. The team was able to increase our allocation to fixed income in the recent market sell-off, at much more attractive prices and with much better yields.”

The fund has returned 11.7%* since launched compared with 3.9%* for its reference sector, the IA Mixed Investments 20%-60% Shares.

VT Chelsea Managed Cautious Growth

“Holdings in a number of specialist investment trusts added to the performance of this fund, including those investing in student accommodation, care homes, renewables, infrastructure and supermarkets. Core holdings in Fundsmith Equity and Fidelity Global Dividend also helped.

“As with the Monthly Income fund, Cautious Growth’s larger allocation to targeted absolute return funds than fixed income funds weighed slightly on performance over the period. Nevertheless, good fund selection meant it still outperformed its reference sector.

“Valuations of fixed income funds three years ago were very expensive in our view, but continued support from central banks has enabled the asset class to perform better than we anticipated. The team was able to add to its positions in fixed income funds during the market volatility of March and April at much better prices, including a new holding in Artemis Corporate Bond fund that quickly built to a 4% weighting. The team believes the fund is well positioned going forward.”

The fund has returned 7.2%* since launched compared with 3.9%* for its reference sector, the IA Mixed Investments 20%-60% Shares.

VT Chelsea Managed Balanced Growth

“VT Chelsea Managed Balanced Growth had a great start and, after one year, was the top performer in the range. It then lost some relative ground as the US started to outperform other markets and the underweight position took its toll.

“Robust allocation once again to new fixed income holdings in the recent crisis has now set the fund up for the future, with access to higher yields and potential capital gain, and the underweight to the US was reduced by topping up the index and adding global funds – like T. Rowe Price Global Focused Growth Equity – which have significant allocations to American companies.

“The positions in India have yet to come good, but we still believe in the long-term opportunities the economy has to offer. Again, holdings in specialist property, infrastructure and renewable energy added value, as did the position in the Smithson Investment Trust, which invests in global smaller and medium-sized companies.”

The fund has returned 9.8%* since launched compared with 7.4%* for its reference sector, the IA Mixed Investments 40%-85% Shares.

VT Chelsea Managed Aggressive Growth

“Last, but by no means least, this fund has had between 90%-100% invested in the equity market over the past three years. Holdings in Lindsell Train Investment Trust and Smithson Investment Trust again added value, as did the Merian Chrysalis Investment Company which invests in pre-IPO companies.

“Positions in specialist US smaller companies funds and biotech were also positive contributors, while Asian smaller companies holdings have lagged their other regional peers and, as has been the case across the range, the underweight allocation to US equities has held back performance over the period.

“During the market sell-off last quarter, the team added to a number of funds with a bias to smaller companies, to make the most of a future recovery. These included MI Chelverton UK Equity Growth, Marlborough European Multi-Cap, Merian UK Dynamic and Granahan US Focused Growth.”

While absolute performance has been good, the fund has underperformed its reference sector (IA Global) returning 17.5%* compared with 21.5%*.

*Source: FE Analytics, total returns in sterling, 5 June 2017 to 5 June 2020

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's views are his own and do not constitute financial advice.