In this weekly series, investment reporter Elliot Gulliver-Needham sits down with a fund manager for a Q&A. This week, we’re hearing from James Yardley, senior research analyst at the VT Chelsea Managed Monthly Income fund.
How does your fund stand out from others in the same market?
Our investors love the fund’s consistent monthly income. The fund pays out exactly the same amount for 11 months of the year with a final remainder payout with any income left over. It’s a fund of funds which combines open-ended funds, ETFs and investment trusts.
This allows us to get income from a very wide range of sources. Alongside traditional stocks and bonds, the fund also has exposure to infrastructure, renewable energy, supermarkets, GP surgeries and care homes to name a few.
Whilst peers were forced to cut their dividends during Covid, this fund did not. The monthly dividend payout has only ever increased since our launch seven years ago and we model our dividends years ahead.
We have added a huge amount of value from our investment trusts over the past seven years even as much of the sector has struggled. We are able to vary our weights between open-ended funds, ETFs and investment trusts depending on discounts, dividend yields and market sentiment.
Another big differentiator is the fund’s costs. A traditional criticism of fund of funds is they are prohibitively expensive. With this fund’s launch, we were determined to change this – it has a very low AMC, and any discounts or special share classes it obtains all go back into the fund. Its OCF is just 0.71 per cent.
Which of your holdings are you most excited about?
We’re really excited about investment trusts. A combination of technical reasons, higher interest rates, regulations and some individual stock blow-ups has meant the sector is very out of favour. This is providing some amazing opportunities.
Our favourite holding is currently Assura. This REIT, specialising in GP surgeries, gets almost all its rent from the NHS. This is a very boring but reliable strategy. Exactly what we like.
The fund’s earnings and dividends have increased year on year over the past decade. Despite this, the share price has been incredibly volatile, having declined by over 50 per cent while the yield has simultaneously risen to almost 8.5 per cent.
The trust has also locked in the majority of its debt at very low rates for the long term. We think this trust will do very well if rates ever start to come down and, in the meantime, we are happy to be patient and collect the dividends.
Another idea is our holdings in Doric Nimrod Air Two and Doric Nimrod Air Three – two aircraft leasing companies which lease A380 aircraft to Emirates. The leases are coming to an end and the replacement for the aircraft, the Boeing 777X has been repeatedly delayed.
We think Emirates needs to keep the A380 aircraft and will have to buy them from these trusts when they come to the end of their leases. Until then, we’re getting a very good income before the leases end.
What is the biggest mistake you’ve ever made in the fund?
After interest rates rose in 2022, we were a little slow to reduce our investment trust exposure. We recognised the danger and did substantially reduce our weight.
However, in hindsight, we should have been even more aggressive and sold out of some holdings completely rather than maintaining a small toehold. This would have given us even more firepower to buy them all back at the end of last year as we have now done.
What’s one change you made in the fund recently? Why didn’t you make it sooner?
We’ve added in some commodity exposure. This includes an investment in the Blackrock World Mining Trust (BRWM) a few months ago following a decline in its share price.
We believe that advancements in artificial intelligence (AI) have the potential to accelerate GDP growth and that this will increase the demand for metals. Additionally, the burgeoning demand for data centres fuelled by AI adoption necessitates significant metal consumption.
Commodities are also something which can’t be easily disrupted by AI. We’ve also added an allocation to oil as a hedge against geopolitical risk and the potential return of inflationary pressures.