So rather than topping up the asset class, we've been adding selectively to some of the alternative investment trusts within our VT Chelsea Managed Monthly Income portfolio.
In total, we have two healthcare trusts, two alternative energy trusts, an infrastructure trust and a student accommodation trust.
Not only are these trusts less economically sensitive than equities, they all yield more than 4 per cent - and as much as 6 per cent in some cases.
An attractive payout indeed, given that 10-year gilts currently yield 1.35 per cent, according to data from Bloomberg as of 13 June.
We have been allocating to these alternatives as and when they experience any price weakness.
While our lack of bonds has been beneficial across the range, our gold and silver positions have disappointed slightly.Some of the trusts have either moved to much lower premiums recently or have slid to discounts. The investment trust structure allows us to find bargains during expensive market conditions and means the vehicle can smooth dividends when necessary.
Not only this, the trust structure reduces liquidity risk which, when investing in the likes of wind and solar energy assets, is particularly important.
Our alternative exposure now stands at 7.65 per cent (not including targeted absolute return funds), having been 5.26 per cent at the end of last year.
Within our VT Chelsea Managed Aggressive Growth portfolio, we have trimmed our satellite exposure to healthcare. We have reallocated this capital to Polar Capital Global Insurance, which is headed up by Nick Martin.
We think this fund is a good, low-beta, global equity play.
After all, everything around us is insured, irrespective of the economic backdrop.
Many policies are also a legal requirement, not a choice.
On a fund-specific basis, 75 per cent of its portfolio is US-listed, which means many of its holdings could benefit from US tax reforms. According to the team, five of its top 10 holdings are likely to pay 10 per cent less tax on average.
In our VT Chelsea Managed Balanced Growth portfolio, our overweight to emerging markets has stood us in good stead over the quarter.
Our exposure to RWC Global Emerging Markets was particularly beneficial, due to its exposure to South Africa and Latin America.
Finally, within our VT Chelsea Managed Cautious Growth fund, we have been holding targeted absolute return funds in favour of bonds which, during February's correction, fell considerably less than the market.
Some of our largest holdings here include Old Mutual Global Equity Absolute Return Hedged at 8.27 per cent, SVS Church House Tenax Absolute Return Strategies at 6.92 per cent and Janus Henderson UK Absolute Return at 6.47 per cent.
Other than these capital reallocations, we have seen little reason to make big changes to our portfolios over the last financial quarter.
One of the few relatively new positions for us – within the VT Chelsea Managed Aggressive portfolio – has been Artemis US Extended Alpha.
We are underweight the US generally, but we particularly like this fund because it is able to short stocks and can therefore make money during more challenging periods.
While our lack of bonds has been beneficial across the range, our gold and silver positions have disappointed slightly.
However, we continue to hold these small positions as hedges. After all, it should always be a warning sign if everything in your portfolio is rallying at once.
Darius McDermott is managing director at Chelsea Financial Services
