I'm an investment manager – this is the recession proof company I'd hold shares in for 10 years

Business Mayor

05-05-2025

Each month, we put a senior fund or investment manager to task with tough questions for our I'm a fund manager series to find out how they manage their own money.
In this instalment, we spoke to Darius McDermott, investment manager of the VT Chelsea Managed Funds at Chelsea Financial Services.
When we question fund managers, we want to know where they'd invest for the next year – and next 10 years – and what pitfalls to avoid.
We also quiz them about Nvidia, gold, and bitcoin and their greatest ever investing mistake.
Darius McDermott heads a team that manages a range of multi asset funds.
The funds were launched in 2017 to offer clients a one-stop shop to invest, with funds to suit different circumstances and risk appetite.
The four funds are VT Chelsea Managed Monthly Income, VT Chelsea Managed Cautious Growth, VT Chelsea Managed Balanced Growth and the VT Chelsea Managed Aggressive Growth.
In the hot seat: We quiz Darius McDermott on the companies he backs, whether Bitcoin and Nvidia are worth it and what his greatest investing mistake was
If you had asked me at the start of the year, it would have been Assura plc, which owns a portfolio of GP surgery properties. However, it has since agreed a takeover by private equity giants KKR and StonePeak.
Therefore, I would instead go for Primary Health Properties plc (PHP). Like Assura, PHP owns GP surgeries which have their rents guaranteed by the NHS.
It's boring but reliable, completely recession proof, and offers a yield of over 7 per cent, making it the perfect stock to own for a long-term income investor.
SDCL Energy Efficiency Trust (SEIT). It is trading on a massive 49 per cent discount and yielding almost 14 per cent.
It has been lumped in with the renewable energy sector, but this ignores the fact that two of its biggest investments are tied into US steel making and manufacturing – sectors receiving strong backing from the current US administration.
Last year, SEIT successfully sold one of its biggest positions, UU Solar, at 4.5 per cent above its net asset value, and it is in process of selling more assets.
If it can achieve more sales, we think the market will not be able to ignore how cheap the trust is.
Renewable infrastructure investment trusts. These trusts have been hammered by the market – since interest rates rose in 2022, sector-wide premiums of 20 per cent have turned into 30 per cent discounts.
Yet, they offer huge yields – often over 10 per cent – with reliable dividends backed by government guaranteed cash flows. In our opinion, the share prices are just too cheap.
We also continue to like the defence sector. Given the fundamental shift in international relations, we can only see defence spending going one way over the next few years. We think this trade is still just getting started.
Trust in renewables: McDermott says renewable infrastructure investment trusts are trading on big discounts and offer huge yields
China – although it's a subject of debate in the team. Geopolitical tensions with the US have made China increasingly difficult to invest in.
It is now seen as a major strategic rival, becoming a world leader in manufacturing and a number of other technologies, which has caused US President Donald Trump to impose the harshest tariffs.
China's ambitions over Taiwan only heighten the investment risk. In this environment, foreign investors could end up as collateral damage.
We're also cautious on pharmaceuticals, with tariffs set to be introduced on this sector for the first time in years.
Yes, especially smaller companies. Years of capital flight have left many UK stocks trading at bargain valuations.
UK smaller companies have suffered one of their worst periods of relative performance to large caps in history.
However, over most long-term timeframes, history shows small caps outperform large caps.
A succession of headwinds – Brexit, Covid, rising inflation and constant technical selling – has left high quality companies in the UK small cap space looking like great value.
Too risky: Geopolitical tensions with the US makes China increasingly difficult to invest in, according to McDermott
We've been gradually increasing our exposure to alternative investment trusts, taking advantage of the continued sell-off that has driven them to better and better valuations.
We remain cautious on equity markets, particularly US equity markets given the high valuations until recently.
We've also been wary of low credit spreads in the bond market which fail to compensate for current risks.
It's been a challenging period to allocate capital, but we've used it as an opportunity to top up positions in compelling asset classes that have been sold off.
It's hard to predict with Trump, who could reverse a policy in an afternoon. However, it seems that a higher baseline of tariffs is here to stay – and that is bad news for the global economy and global stocks.
The longer this uncertainty drags on, the more it impacts confidence and eventually feed through to the real economy. We will likely see some lasting impact.
Stock pick: McDermott says Primary Health Properties plc (PHP) is a great choice for a long term investor because it is completely recession proof, and offers a yield of over 7 per cent
I would be cautious about writing off the US. Tariffs will impact the rest of the world too – Europe and China in particular, as export orientated economies, could really suffer.
The US is still home to many of the world's best companies, including the global leaders in AI, while a weaker dollar would boost earnings for US multinationals. We are still believers in its potential.
We still like Nvidia. In our view, the potential of AI is being massively underestimated by the market and the general population.
Companies and states are locked in an arms race to achieve Artificial Superintelligence first and they will pay any amount to get there.
Nvidia's chips are essential to this effort, and the demand for computing power is only going to keep rising.
Nvidia's moat, both in terms of its chips and software, still seems very strong.
Boom or bust: McDermott believes AI is being massively underestimated by the market and thinks Nvidia will play an essential role in AI evolution
Both. Betting everything on one style will hugely increase your volatility. It's always wise to maintain a balance between growth and value to ride out the sharp swings from when they fall in and out of favour.
We think it is very foolish to become dogmatic one way or the other. There are many passive zealots, but they often underestimate the risk they are taking.
For example, we saw a number of cautious multi-asset passive funds inflict heavy losses on investors when government bonds sold off.
There are many great active managers who genuinely add value, but you must be selective.
Several trends have recently shifted in favour of active management. First, fees across the board have become much more competitive with passive options, which benefits all investors.
Second, as more of the market moves into passive, the more inefficient it becomes – creating more opportunities for active managers to outperform.
Passive strategies are inherently backward-looking. Today, the concentration risk in passive indices is striking: the 'Magnificent Seven' now account for 32 per cent of the S&P 500's market cap and make up over 20 per cent of the MSCI World Index.
This means many portfolios aren't just overweight in the US, but also highly concentrated in a small number of companies.
If we are entering a period where US exceptionalism fades, active management could be much better placed to navigate what comes next.
Don't be a fundamentalist and keep an open mind. Market situations always change.
The Donald factor: The longer uncertainty around tariffs drags on, the more it impacts confidence and eventually this will feed through to the real economy, says McDermott
Put simply, we have the ability to avoid doing very stupid things.
Passive funds, by design, have no choice but to buy whatever the index dictates – such as long-dated government bonds with 0 per cent or even negative yields, many of which have since lost 50 per cent or more of their value. For years it was fine – until it wasn't.
We welcome passive investors: they are forced buyers and sellers, which often creates opportunities for active managers like us.
Since launch nearly eight years ago, our monthly income fund – sitting within the IA Mixed Investment 20-60 per cent sector – has outperformed the largest and best-known 40 per cent equity passive fund by 28 per cent.
UK house prices have been artificially inflated by governments for decades.
An artificial supply shortage – largely due to the difficulty of obtaining planning permission – combined with massive demand from higher immigration and decades of low interest rates has driven valuations exceptionally high relative to people's wages. This is unsustainable.
The good news is that post Covid, higher inflation, and more importantly higher wage inflation, has helped to correct this.
Wages have gone up whilst house prices haven't because of higher interest rates making it harder to borrow.
UK house prices are still very overvalued, but a crash looks unlikely unless we see a massive increase in unemployment.
This is because there is still a major structural shortage of homes. As long as the structural imbalance exists, house prices are likely to remain high for the foreseeable future.
Overvalued but not about to crash: While house prices are too expensive, according to McDermott, he says there is unlikely to be a crash without a big uptick in unemployment
Yes, in our view it always has a place in a portfolio. Gold is a proven store of value and a useful hedge against a collapse in the global financial system.
The US and the US dollar has dominated the financial system, but that era may be coming to an end.
Markets are starting to lose faith in both the US dollar and US treasuries as safe havens.
The US is very heavily indebted, running massive fiscal deficits, and faces growing political uncertainty with a maverick president in charge.
The trouble is there is no obvious replacement: the euro, yen and yuan don't really cut it. The only true safe have is gold.
This question is an article in itself. Broadly, we believe crypto has potential.
Whilst we don't like Bitcoin, we can see how it could do very well in a scenario where confidence in central banks and fiat currencies collapses.
The ongoing geopolitical tension between the US and China. The unipolar era, where the USA dominated the world in terms of military and economic power, is over.
Unfortunately, this leads to a less stable world with much greater potential for conflict.
Always remember that, in times of uncertainty, states prioritise security over prosperity.
It depends on your age and personal circumstances. If you have a time horizon of 20 years or more, I would invest it in global equities and not touch it. Let the market do its job.
Doric Nimrod Air Two. A little aircraft leasing investment trust that owned a fleet of Airbus A380s leased to Emirates.
We added to our position during Covid and made about 600 per cent when the world realised these aircrafts would be needed again.
At the end of December 2022, when it became clear that inflation was sticky and that interest rates were heading higher, we had too much growth exposure.
Whilst we reduced our growth positions a little, we should have sold a lot more. Growth went on to underperform significantly over the next 18 months.