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The first thing that struck me on entering Powderham Castle for our recent seminar, apart from the magnificent 'Powderham Blue' hallway, was how cold it was! One wonders at the difficulty in maintaining a house that large. Of course many couldn’t, hence the period between the two World Wars when many were turned into schools or hotels or handed to the nation to avoid Estate Duty.

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The theme of the seminar focused on both taxes, particularly Inheritance Tax and inflation. Whilst the first one happens after you are dead, one must live with the latter and it’s currently not going away.  While recession risk feels contained, the greater threat now lies in the potential re-emergence of inflation - this is why the RM Alternative Income fund is so relevant. I have written about this fund before as it forms an important part of any portfolio for those seeking income and we were very lucky to have the fund manager, Pietro Nichols join us at the seminar for a question-and-answer session.

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More relevant than ever, with the concentration risk of such a small number of companies in one sector dominating equity markets, is the need to diversify. When the wind howls, and it will, investors need safe harbour in which to shelter. Pietro’s fund specialises in a variety of sectors that have defensive characteristics, sitting between traditional equities and fixed interest, and in the latter case, seeking a rising rather than fixed income. The fund currently yields +6.8%.

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Pietro favours real assets that dominate their local economies and are supported by structural demand. Real assets such as Union Pacific Railroad (serving 23 U.S. states), TC Energy Corporation (a core pillar of North American energy infrastructure) and Japan Airport Terminal (a key gateway in one of the world’s largest economies) benefit from regional scale, high barriers to entry, and asset bases tied to GDP growth - providing insulation from rate-driven volatility while still offering meaningful upside as regional economies expand.  Closer to home is an investment in Heathrow Finance which takes £25 off each passenger that boards a plane from London, something that holders of the fund can appreciate when they next fly.

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The fund is gradually moving to a more neutral weighting in UK energy, a sector that is overcrowded with too many listed vehicles chasing limited investor capital which widens discounts and deepens the dislocation between intrinsic value and share prices. This presents opportunities through M&A and recent bids have seen significant shareholder value. Foresight Energy recently bid for Harmony Energy with an uplift in shareholder value of +41.7%. In the interim, the average sector dividend yield is +11.28%.

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During the presentation I brought up a slide to demonstrate the stark effect of inflation on one’s income. (See below). Over the last five years inflation has grown by +28%. That means £100 of income five years ago is now worth only £72.  How to counter it? Invest in asset backed investments that can generate inflation proofed income. In this example I picked out another favourite fund of ours, Law Debenture, whose dividends have increased by over 5% pa for the last five years. The result - £100 five years ago is now worth £128 today. That’s how you do it.

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And finally, I attended a lunch last week at the offices of Troy Asset Management, whose two investment trusts are on our Buy List.  On the day I met with the managers James Harries and Tomasz Boniek who manage the STS Global Income and Growth Trust. Like Law Debenture their focus is on income, with growth, but the managers have very different approaches further validating our diversification play and with the exception of STS who holds Microsoft, neither hold any of the other Magnificent 7 companies. The relevance for this article was the importance of the use of defensive funds that can generate dividends rather than relying on capital gains to derive an income. When markets correct and share values fall, maintaining a dividend will provide some comfort.

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Active conviction management, or selective stock picking is once again in vogue among those who understand where true value lies.

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*Figures provided by RM Alternative or FE Analytics to 30/09/2025

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Comments from James Scott-Hopkins, Founder, EXE Capital Management.

The views are those of the author only. The above does not constitute a recommendation to buy specific funds or assets and advice should be sought from your financial advisor as to the appropriateness of this in your portfolio.

The value of investments can fall as well as rise. Past performance is no guarantee of future returns.‍

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