Specialist asset manager RM Funds is to launch an open-ended fund that will invest in a combination of investment trusts and stocks to give exposure to alternative assets such as specialist lending, infrastructure and more esoteric forms of real estate.
The company, best known for the RM Secured Direct Lending (RMDL) investment trust, said the new open-ended fund will aim to provide a 5 per cent yield and annualised return of 7-8 per cent over three to five years. The VT RM Alternative Income Fund (GB00BD6SVR23) will be available to investors from 11 June and will have a capped ongoing charge of 0.85 per cent.
It will be managed by RM Funds chief investment officer James Robson and principal investment manager Pietro Nicholls. The duo currently manage the RM Secured Direct Lending trust – which provides loans to unlisted small and medium-sized companies – so have form on running alternative asset investment strategies. However, the open-ended fund will see them blend this strategy with more esoteric investments.
RM Funds said the new fund would hold listed equities, real estate investment trusts (Reits) and investment trusts that focus on asset lending, direct lending, peer-to-peer lending, infrastructure debt and equity, property, structured credit and renewable energy – all of which tend to be higher-yielding and uncorrelated to traditional bonds. However, the managers said they expect the fund to be split roughly 50-50 between listed equities and investment trusts, so the fund would still be correlated to equity markets.
The new fund is believed to be the first open-ended product to offer broad exposure to alternative and high-yielding assets. Such assets tend to be more suited to investment trusts as they cannot always be traded quickly, making liquidity a concern. However, Mr Nicholls said the strategy would allow for 95 per cent of the portfolio to be liquidated in a single day to meet any significant withdrawals from the fund.
Gavin Haynes, managing director at Whitechurch Securities, said the new fund was interesting but that he would take a wait-and-see approach before investing.
“Bond yields are still very low, so no doubt people are looking for alternative sources of income,” he said. “The question is where you look for that. In the investment trust space there’s a huge range of specialist trusts promising high yield, but you need to be able to assess the risks and return of those different areas and that’s what these managers are looking to do on behalf of investors through an extra layer of due diligence. But as it’s a fund investing in a range of investment trusts, investors need to accept there’s an element of double charging as you need to buy the underlying trusts.”
Mr Haynes added that the ongoing charge of 0.85 per cent is a little on the high side for a new fund, but should the managers achieve their targets then investors should not mind paying it.
FundCalibre managing director Darius McDermott said he thought the income target was "punchy" but, like Mr Haynes, urged some caution over the fee level.
"Although the fee is capped it is not super cheap. So it will depend on how many investors see the fund and think it is worth investing," he said.
Mr McDermott said the fund was essentially a multi-asset strategy, albeit one that invests in a range of alternative assets. There are other funds out there that also provide a similar level of income, he added.
"It will still be attractive because more and more people need an income and interest rates are still exceptionally low," he said.
Mr Nicholls was reluctant to describe the new vehicle as a ‘fund of funds’ because, although roughly 50 per cent of the initial portfolio of around 40 positions will be in trusts, the remainder will consist of direct holdings. These would predominantly be in companies, or listed debt, that offer exposure to the alternative income sector, such as NewDay, a financial services company specialising in providing credit products to UK consumers, and Voyage Care a care home provider.
Investment trust holdings will include RM Secured Direct Lending, alongside other trusts such as Sequoia Economic Infrastructure Income Fund (SEQI) and Honeycomb Investment Trust (HONY). The fund can also invest in other assets, including bonds and collective investment schemes.
