The Chelsea investment philosophy & process

We take a 'common-sense' approach to constructing portfolios and don't believe in sticking to strict benchmarks. We are quite willing to underweight certain asset classes or even ignore them entirely if we feel they do not offer sufficient value to the portfolio, at the current time.

Our approach will generally be long term and forward looking. We invest in a broad range of assets, which should combine to enable the portfolios both to navigate the prevailing economic environment and also to adapt to changing market conditions. We will take shorter-term tactical decisions where we see opportunities or we believe there is a need to protect the portfolio.

We only invest in managers we trust and in whose process we have confidence. We are always conscious that we are stewards of our investors' hard-earned money and a fund we select has to be one in which we ourselves would invest.

All the funds are designed to offer the best possible returns for the least risk. We pay close attention to valuations. Markets and assets that we consider expensive versus their history are considered to be more risky.

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Learn more about the Chelsea research team

Our four steps

1. Macroeconomic environment

Our process starts by looking at the world around us and our place within it. This macroeconomic picture is key to how we position the funds. A combination of our macroeconomic view and valuations forms our allocation to particular asset classes and regions.

Our views are formed from the fund managers we meet, as well as our own internal research. We focus on potential risks, turning points and opportunities that the markets may have overlooked, taking a long-term view. The current thesis will be constantly debated and tested by the research team during a weekly investment meeting. We will take short-term tactical positions where we see opportunities or if we believe we need to protect the portfolio.

2. Fund selection

Fund Selection is a combination of quantitative and qualitative analysis. The research team conducts regular analysis by sector, looking at risk-adjusted performance using a number of different metrics. This helps us to identify funds for further analysis.

If an entirely new fund is flagged, then the next stage is to check whether the identified performance is that of the current manager and how long they have been in place. If a fund looks potentially interesting we will schedule a meeting with the fund manager/s.

During a meeting we:

  • Assess the fund's investment process 
  • Try to establish in which environment the fund will under/outperform 
  • Examine the team and any support the manager may have 
  • Determine how free he/she is to follow his/her own process or how constrained they are by a house view
  • Analyse how much of their time is spent in managing money rather than marketing/managerial responsibilities
  • Assess how happy/financially motivated they are in their current position and whether they invest in their fund - i.e. how much they are in line with investors.

Following the meeting a discussion takes place within the research team, who collectively make a decision on whether to add the fund to the watchlist. A fund will not be added solely on strong past performance, we must be confident that the fund manager is a suitable candidate to manage our investors' money and that they have a repeatable and consistent process in place.

3. Building the portfolio

A crucial part of the process. We aim to combine our favourite funds in the most efficient manner to deliver the maximum returns for the least risk. It is important that funds have the ability to perform independently of one another. This means they won't all go up and down at the same time, which smooths returns and reduces risk.

Whilst we maintain a high degree of conviction in both our asset allocation and fund selection choices, we also aim to build resilience into the portfolios to enable them to perform in different economic environments.

4. Monitoring and modifying

We monitor the performance of all our underlying holdings using data provided by FE analytics. During every meeting we drill down into each portfolio asking why we have each holding and if the weighting is still correct. Any proposed changes are debated by the investment team. All changes must be agreed by the whole team before they are implemented.

Typically, we expect to back managers for the long term and will generally avoid unnecessary trading in order to keep costs low. We will constantly see new managers and we will replace funds where we find a better alternative.

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Important information

The VT Chelsea Managed Funds are for investors who prefer to make their own investment decisions, without personal advice.

Valu-Trac Investment Management Limited is the authorised corporate director (ACD) and investment manager of the VT Chelsea Managed Funds. Valu-Trac is authorised and regulated by the Financial Conduct Authority (FCA). Valu-Trac’s FCA registration is 145168. Chelsea Portfolio Management Services Limited will be the investment adviser for the VT Chelsea Managed Funds.