VT Momentum Diversified Income: The special gift that keeps on giving

This article was originally published in Investment Week on 5 August 2025

There has finally been some positive (albeit sometimes chaotic!) news around investment trusts this year as the combination of consolidation, activist investors and a general broadening of equity markets has resulted in discounts narrowing.

It was only late 2023 that I distinctly remember when the average discount widened as much as 15% for these closed-ended vehicles, a number not seen since the Global Financial Crisis. Some areas have experienced more volatility than others, such as specialist trusts that invest in the likes of renewables, infrastructure and private equity. These vehicles have tended to trade on big discounts at various points in the market. I remember trusts which rely on whether the sun shines or the wind blows trading at 40-50% discounts during peak Covid uncertainty. In short, big opportunities to tap into negative short-term sentiment.

In the days of low interest rates, these specialist trusts also helped deliver reliable yields when investors had been crying out for them. This made them a popular home for many income-seeking multi-asset managers.

One such example is the VT Momentum Diversified Income fund, which aims to produce a high level of regular income (it currently yields 5.46%*), with the prospect of preserving the real value of capital over the long term. The fund is headed by Richard Parfect, who adopts a value-focused style. He is joined on the vehicle by fellow portfolio managers Tom Delic and Gary Moglione.

The fund has a very clearly defined and well-disciplined process, making use of all the different asset classes available, with each team member responsible for different areas.

An all-time high for specialist investment trusts

Right now these specialist trusts are taking centre stage, accounting for a record high 42% of the portfolio. The trust has had a number of long-standing names like Doric Nimrod 3, which leases and sells aircraft, as well as names like Gore Street, Greencoat Wind and Foresight Environmental. Richard says the growing confidence around disclosure concerns being ironed out and M&A starting to pick up saw the team start to add new names into this bucket. 

“We started to add to familiar names where we had confidence in the manager, the asset and the implied discount rate on those assets. When you factor in the discount on these shares, it normally came at numbers we did not believe were right – particularly with overseas investors and private assets coming in and taking companies at or close to NAV. The anecdotal evidence was that these assets were not being mis-priced from an NAV perspective, rather the market was mis-pricing them,” Richard says.

Attractive valuations in the market saw new names like BBGI Global Infrastructure and Downing Renewables & Infrastructure being added. The former was in the portfolio for around five weeks before a bid came in. 

Richard acknowledges the discounts are starting to come down. He says a number of the underlying holdings are generating a decent income, while the re-rating we’ve seen has not been aggressively sold into.

“It will start to reduce naturally as we see names disappear in the market (such as Doric Nimrod 3 which has a limited life). I would not expect all those new assets to be reinvested into specialist trusts and for us to focus on other areas of the market,” he says.

Things are clearly a lot easier from an income perspective today. The fund has a number of high single-digit yielders in the renewable space, but is also getting a good running yield from gilts – which clearly was not the case for a number of years (29% of the portfolio is in the fixed income bucket in total)**.

Growthier names and where next as discounts narrow

This has given the team freedom to invest in some growthier names, such as Downing European Unconstrained Income, which is more of a small-cap offering. Essentially everything before 2022 had to really contribute to that yield target.

So, with further price normalisation likely, where will the redeployed assets from the meaningful strategic asset allocation overweight to specialist trusts go? Richards says equities have the most opportunities, however this is unlikely to be in the US at this stage.

He says: “The market has got to the point where it is looking through Trump, which is possibly the right thing to do in the short term. However, we do have a fixed future on the portfolio so we have the opportunity to participate in short-term volatility pick-up. I think the US is at risk of huge self-harm over the medium to long term. The cost of capital will increase and that inevitably brings up more opportunities in other geographies.”

Areas of interest include both Europe and also the UK, where the trust already has a trio of positions in names like Temple Bar Investment Trust, Murray Income Trust and Aberforth Geared Value & Income Trust**.

This is a well-diversified, global, multi-asset income-focused fund, with a common sense investment process that focuses on value investing and income generation. The three-strong management team have proven their ability to switch direction when needed to make sure they are maximising the opportunities open to them at changing points in the market. Long-term performance has been excellent, returning 42.2% to investors on top of the attractive yield***.

*Source: FE Analytics, 16 July 2025

**Source: fund factsheet, 30 June 2025

***Source: FE Analytics, total returns in pounds sterling, 16 July 2020 to 16 July 2025