Darius McDermott, fund advisor to the VT Chelsea Managed fund range says that markets do have their challenges, but we must remain calm – even when we receive a punch in the mouth.
When Mike Tyson was asked by a reporter whether he was worried about Evander Holyfield and his fight plan ahead of their first famous battle he answered; “Everyone has a plan until they get punched in the mouth.”
This quote isn’t an argument against planning, but reminds us planning is a continuous and flexible process.
The real value of proper planning comes from being able to be flexible when reality deviates from the plan. Despite being a big outsider, Holyfield adapted and won the fight.
We, as investors, have all taken a punch to the mouth in recent weeks, as the horrible events in the Middle East take their toll in every way.
We have long said that we wanted the VT Chelsea Managed fund range to be diversified, with different buckets of risk-on and risk-off investments.
We also want as many sources of income as possible for our Monthly Income fund. Basically we want to be prepared for almost any scenario.
After initial hopes that the conflict would be short-lived, we have now moved into an environment which clouds markets in both the medium and longer-term.
After some initial resiliency, markets began to sell off on March 3. However, it is important to remember markets will always experience volatility and corrections as a natural part of an economic cycle – these declines are usually temporary, resetting valuations and offering opportunities for long-term investors.
How the VT Chelsea Managed funds prepare for different market environments
As markets have continued to grind ever higher in the past couple of years our messaging has been clear – take advantage of opportunities as they arise but maintain a balance and diversification that allows us to be prepared for uncertainty in markets.
We own numerous investments which are designed to offer protection to investors should such events unfold.
One of the changes we made in 2024 to counteract growing geopolitical uncertainty was the purchase of the Future of Defence ETF in our portfolios – this offers investors exposure to the companies generating revenue from NATO and NATO+ ally defence and cyber defence spending.
One of Trump’s earliest campaign messages before getting into the White House was for Europe to spend more on defence; we also recently hit the four-year anniversary of the Russian invasion of Ukraine, a war which, unfortunately, shows no sign of ending any time soon.
We’ve also been backers of gold as a strategic long-term asset – as it offers a degree of security to investors.
We have increased our weighting to short-dated bonds and had a slightly larger exposure to cash. We’ve also been adding to our oil position amid the uncertainty in the Middle East.
The shutdown of the Strait of Hormuz, a key shipping route for oil and liquefied natural gas, could have major consequences.
Around 20% of the world’s oil transits through that passage and its closure has prompted broader fears of knock-on inflation in energy prices.
In a nutshell, we’ve been active and cautious in our approach.
This applies to equity valuations as well, where after a period of US equity outperformance we have been rotating into the likes of Asia, emerging markets and Europe as returns have broadened out globally.
Cautious and uncorrelated
As multi-asset managers we recognise the need for uncorrelated returns as a way of bringing consistency in performance.
A good example of us scouring the market for unique opportunities is our recent purchase of TRIUM Alternative Growth, an offering which looks to generate capital growth whilst exhibiting low correlation to equity markets over a rolling three-year period.
It is a specialist; complex vehicle and we have invested in it in both our Cautious Growth and Balanced Growth funds.
We believe it behaves like a true absolute return fund, in that it should produce low single digit returns in normal market conditions but continue to produce positive returns when other markets fall.
Markets do have their challenges, but we must remain calm.
When Russia invaded Ukraine in February 2022 the Euro Stoxx 50 (which represents Eurozone blue-chip companies considered as leaders in their respective sectors) fell over 12% in the following couple of weeks*, those who held firm have since seen the index rally almost 100%**.
It pays to be patient, and we believe we are well positioned regardless of the direction the market takes from here.
*Source: FE Analytics, total returns in pounds sterling, 24 February 2022 to 8 March 2022
**Source: FE Analytics, total returns in pounds sterling, 8 March 2022 to 3 March 2026
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.
Main image: boxing glove, prateek-katyal-FNMztJegsSA-unsplash
