VT Chelsea Managed Fund Range – Year in Review 2023

It’s been a very tough couple of years for investors. Higher inflation and rising interest rates have hit all asset classes. As a result, we’ve been playing defence for a long time as our quartet of funds have drifted sideways. But there is finally some good news as we’ve started to see changes which indicate there may be light at the end of the tunnel.

There was a point when the horrors of 2022 - where global equities fell almost 20%* – would likely continue throughout 2023. In the mid-part of this year there were genuine expectations that UK interest rates could peak at 6% as the Bank of England (BoE) sought to tackle stubbornly high levels of inflation.

But things have hopefully started to change for the better. In the third quarter, the BoE decided to bring an end to 14 consecutive rate rises, dating back to December 2021. The US also left rates unchanged giving us the first bit of solid evidence we may be near the end of the rate rising cycle. Inflation has also started to come down across the world.

In addition to this, labour markets are also starting to show signs of weakness. All of this is starting to take the pressure of central banks - and we may even start to hear calls for rate cuts in 2024. There is an element of time pressure within this scenario – as policymakers in the UK look to avoid recession. For example, one million UK mortgage holders could see their disposable income fall by 20% because of rising rates, according to the Institute for Fiscal Studies**.

Challenges turn to opportunities

A number of challenges have impacted the VT funds throughout 2022 and the first half of 2023. The first of these would be the performance of fixed income as an asset class amid a rising rate environment.

For a long time the team recognised the low yields and poor risk reward in fixed income and had been very underweight the asset class for many years as a result. However, the headwinds are starting to turn into tailwinds with inflation falling faster than expected and, importantly, a fall in government bond yields. This has lowered rate expectations and resulted in a bounce back for the asset class. We have gradually added more longer dated bonds to the portfolios as yields have offered better value.

The second opportunity comes through our exposure to investment trusts – these have been hit especially hard as investors have fled for the safety of government bonds. We heavily reduced our exposure to investment trusts last year but have rebuilt these positions throughout 2023 because of the incredible value on offer.

The simple reason for this is that some of them are as much as 50% cheaper. Many trusts are yielding over 10% and some trusts are trading on discounts as wide as 50% or more. In our view the sell-off has gone way too far and with interest rate expectations now falling we think alternative investment trusts could be some of the biggest beneficiaries.

For the second year in a row Doric Nimrod Air 2 has been our best performer. We understood that delays to the 777X aircraft - and the recovery in air travel - meant the previously unloved A380 still had an important role to play for Emirates. The trust is up 48%*** followed closely by Polar Capital Technology (PCT). PCT is up 46%*** year-to-date and yet continues to trade on a wide discount. We added to this position last year as we felt tech had been oversold and this has paid off.

Other positives include the takeover of Round Hill Music, which surprised the market and led to excellent returns for the Cautious, Balanced and Monthly Income funds. Our renewable energy trusts had a tough year but fundamentally continue to generate great cash flows and continue to perform very well. We have increased our exposure to high quality, secure, property trusts, such as Assura (GP surgeries), Target Healthcare (nursing homes) and Supermarket Income REIT. All are trading on large discounts with huge dividend yields.


Heading into 2024, we are hopeful bond yields continue to fall and inflation and interest rates come down – meaning we can unlock some of the value in the portfolio. Although things have improved, we are still in extremely uncertain markets, but we feel we have added a number of good investments at extremely attractive prices, which we believe have the potential to deliver good returns in the future.

The VT Chelsea Managed Monthly Income fund is now generating more income than ever – paying its largest ever distribution (3.5 times its normal monthly payment) in September 2023****.

I would also like to end by thanking you for supporting the fund range. Having recently seen it pass the £150m barrier for asset under management****, we remain as determined as ever to continue delivering the best results to help you reach your long-term financial goals.

*Source: FE Analytics, total returns in sterling, 17 November 2021 to 20 June 2022
**Source: Institute for Fiscal Studies, 21 June 2023
***Source: FE Analytics, total returns in sterling, 30 December 2022 to 14 December 2023
****Source: FE Analytics, 14 December 2023

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. The views expressed are those of the author and fund managers and do not constitute financial advice.

Published on 18/12/2023