Maximising income: insights into the VT Momentum Diversified Income fund

Chris Salih (CS): Hello, I’m Chris Salih, investment research analyst at FundCalibre, and today, today I’m delighted to be joined by Richard Parfect, fund manager on the Elite Radar VT Momentum Diversified Income Fund. Richard, once again, thank you for joining us today.

Richard Parfect (RP): You’re welcome.

CS: Thank you. So let’s start with a sort of very logical point, which is the income level. Maybe just talk us through the sort of levels you’re generating at the moment and, and is it perhaps, dare I say, a bit easier than it’s been in the past to reach those sort of figures?

RP: Yeah, sure. So the income yield on the income fund is around 5.5%. And since we’ve been running it when it started 2002, these are certainly the easier times to be generating that yield given obviously what’s happened to interest rates in recent years. And to illustrate that it would be the fact that we now own a few gilts, you know not loads, but just under 5% of the funds and gilts and that hasn’t been the case or hadn’t been the case for a number of years. So yes, it’s is easier, not easy certainly, but it is easier than it had been to generate that.

CS: Does that, I don’t want, we use the word easier to be careful with that, but does it give you a bit more latitude in terms of the construction of the portfolio as well to invest in other areas that perhaps it was harder to in the past?

RP: Sure, yeah. The sort you can deploy a barbell strategy a little bit more. What do I mean by that? Well, you know, we have certain investments that are more than carrying their weight in terms of income generation. So some of the investment trust would be an example there. Very high yields there. And that means we can afford to own some other assets such as private equity, which are very, very cheap right now. And private, although there are a few exceptions, private equity is not renowned for income generation obviously, but it is possible to still get income there.

CS: Okay. Maybe just in terms of where the sweet spots are, where do you see them for dividends at the moment? Are there certain areas, be it, you know, within equities that you find particularly attractive?

RP: Well probably the sweet spot for income generation and valuation as a whole, I’d say is investment trusts as I said earlier. So that’s the areas that we’re involved in is infrastructure listed, infrastructure trusts, some of the REITs as well specialist financial investment trusts. So where we’re seeing yields there sort of, you know, high single digits even digits in a few isolated cases without too much, without, you know, taking too much, you know, risk to that that, because that’s a that is an outcome of, you know, decent income generation within the vehicles themselves, but where sort of against the yield against nav net asset value would be, let’s say sort of 6.5% to 6%, maybe more in some cases. But then manufacturing the discount, the share price discount to that now, which in many cases is 30%, 40% maybe that, that pushes the share, the yield against the share price significantly higher. So that’s very attractive. There are also within equities you know, some areas that are, you know, attractive UK equities the UK <inaudible> market, they out favour for you know, a number of years now. And we’ve, we’ve got, you know, some sort of dividend champions in there, you know, household names that you’d be familiar with, Tesco and the like, you know, Unilever.

CS: I was gonna say some of those sort of quality SIDS a bit further down in the UK and Europe areas you’re looking at as well. Isn’t, isn’t that right? Yeah.

RP: So yeah, we’ve long held a sort of a bias towards some mid caps. But you know, we have broadened that in the last sort of 12, 18 months to incorporate a bit more of the sort of the FTSE 100 names indeed, you know, some mid caps used to be FTSE companies and some companies such as Marks and Spencer’s have have rejoined the dividend register, you know, so but yeah, it’s, you know, we’re not we’re not, and we certainly don’t need to to sort of be too adventurous there in, in UK C ’cause it’s so outta favour. And and generally speaking, clearly there’s, there will always be a few exceptions, but generally speaking, UK PLC is trading quite well, really.

CS: Okay. On that now, Richard, thank you very much once again for joining us today.

RP: No thanks, Chris.