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VT Munro Smart-Beta UK Fund


Until now tracker and index funds have only been constructed with reference to the market capitalisation of each constituent company. The market capitalisation is calculated by multiplying the number of shares a company has by its share price. So, if the share price goes up 10% so does the market value of the company. Sometimes, as in the dot com bubble, share prices rise simply because sectors and companies become popular. That can make them expensive and vulnerable to sharp collapses when sentiment changes. In few other walks of life do we assess things purely on price. We always seek to find some measure of quantity.

Our preference is to use a fundamental measure to assess companies.

The VT Munro Smart-Beta UK Fund uses consensus forecast gross cash dividends for each constituent company, in relation to the total for the index, to determine the size of each holding. Using a fundamental measure, rather than price (market capitalisation) as with most index funds, gives it a value bias. This model bridges the gap between active and passive funds and could be described as Smart Beta. The model is rebalanced every month to incorporate changes to dividend forecasts and the fund is reconciled to the model every day to exploit volatility.

Every year since 1956 Barclays has published a study of the long-term returns from investing in equities and in gilts using data going back to 1899. That means it includes data from times of war, recessions, booms inflation and deflation. The graph below illustrates the theoretical returns that could have been generated had anyone invested £100 in the UK stock market in 1945.

The lower line shows the return, before costs, of the capital value alone and ignoring any dividends paid. It shows that £100 would have grown to £10,030 by the end of 2016. The other line illustrates what might have happened, again before costs, if the dividends generated by the portfolio over that period of time had been reinvested. That initial sum of £100 would have grown to £211,392, again in today's money and not allowing for inflation, by the end of 2016.

Although that figure is about 95% higher than the capital only sum it can be shown that the reason it is so much higher is because about half the growth in value has come from the dividends, growth in dividends and the reinvestment of those dividends.

Returns from GBP 100 invested in the UK stock market in 1945

   Source: Barclays Equity Gilt Study
   Past performance is not necessarily an indication of future results

The data from Barclays shows that dividends are an important factor in the overall return from investing in equities. These two graphs help put the dividends from the fund into context over time and relative to the market overall. These data are for the X Income shares. Dividends for the Accumulation shares are reinvested by the manager.

Growth in Dividends

   Source: Total Market Dividends from Capita Asset Services, Fund dividends from Valu-Trac Investment Management Limited
   Past performance is not necessarily an indication of future results

This graph illustrates the dividend payments, and the growth of those distributions since the fund was launched in 2007. It also shows the total payments made by all companies on the London Stock Exchange as determined by Capita.

Over time the frequency of distributions from the fund has increased from half-yearly to quarterly and now monthly as the next chart demonstrates.

Trailing 12 month Dividend X Acc

   Source: Valu-Trac Investment Management Limited
   Past performance is not necessarily an indication of future results

The higher distribution in 2014 was due to the special dividend from Vodafone.

A lot financial commentary revolves around the current level of any security, or collection of securities such as a stock market index. However, this detracts attention away from the single most important feature of the investment world which is the crucial role of reinvested income.


Annual Report 2021
Annual Report 2020
Annual Report 2019
Annual Report 2018
Annual Report 2017

Application Form VT Munro Smart-Beta UK Fund - Individuals
Application Form VT Munro Smart-Beta UK Fund - Institutional

Key Investor Information - Class A
Key Investor Information - Class B
Key Investor Information - Class X

Latest Factsheet

Latest Blog Whose rules should determine investment portfolios?

BHP is one of the largest dividend paying companies in the world and its cash flow has been a huge boost to most UK investors in recent years because of its place in the UK stock market indices.

However, because of pressure from hedge funds the company is proposing to drop its primary listing in the UK so that its only main listing will be in Australia. As a consequence, this move if approved by shareholders, means it would no longer be part of the UK indices and therefore all passive funds, and probably the majority of active funds that are benchmarked to UK indices, will be obliged to sell their holdings.

This would have two immediate effects...   Click here to see more
Blog Archive  
January 2021 Every crisis has different reasons to be the same
April 2020 Why link executive pay to share price?
August 2019 Is past performance really no guide to the future?
October 2016 To trade, or not to trade?
September 2016 Don't be fooled by the decimal point
August 2016 Now it is easier to see what risk is
July 2016 Big caps are back
June 2016 The hunt for yield
May 2016 Has QE come to an end?
April 2016 Conflicts arise when the agent becomes a principal as well.
March 2016 Smart-Beta is...



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Value of investments can fall as well as rise and you may not get back the amount you have invested. Income from an investment may fluctuate in money terms. If the investment involves exposure to a currency other than that in which acquisitions of the investments are invited, changes in the rates of exchange may cause the value of the investment to go up or down. Past performance is not necessarily a guide to future performance.
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