So-called “wealth preservation” investment trusts are often judged on their ability to shield shareholders from periods of equity volatility, and have done well on this front as of late.
Personal Assets (PNL) and Ruffer (RICA) shares made modest gains in April, a month that saw the MSCI World index lose almost 3 per cent in sterling terms, while Capital Gearing (CGT) was down by a meagre 0.1 per cent. All three of these trusts are also sitting on gains for 2025 so far.
The trio are known for having some allocation to equities but also making use of more defensive assets to protect investors in the event of a sell-off.
Ruffer makes notable use of short-dated bonds and cash, for example, while Personal Assets and Capital Gearing both have big allocations to inflation-linked government bonds. The funds tend to have other quirks, from their particular currency preferences to Ruffer’s use of derivatives.
It’s easy to focus on how these portfolios seek to defend investors against different threats, be this market volatility or rampant inflation, and that should certainly inform a budding shareholder’s choice of which to back.
But they all seek to generate some growth too, in part by using equities. For those using such trusts as a core holding that can protect but also grow their wealth over time, it’s worth understanding the different forms of equity risk they take.
These trusts don’t always have the most substantial portfolio disclosure, and can differ notably in terms of what they do tell investors. But we have examined what the trusts do tell us to understand exactly where they are invested.
Note that we exclude RIT Capital Partners (RCP) from the analysis due to the fact that, while it is often viewed as a wealth preservation trust, it takes a wildly different approach from the other three, including big allocations to unlisted assets.
RIT shares held up nicely in April but in recent years they have behaved less defensively than those of the other three.
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Capital Gearing had the lowest equity allocation of the three at the end of April, on 17 per cent versus 26.7 per cent for Ruffer and 36 per cent for Personal Assets.
However these weightings can shift substantially, especially when markets are volatile, and in such times it’s worth monitoring the commentaries penned by the wealth preservation management teams, as well as keeping an eye on their monthly asset allocation disclosures.
Managers from Personal Assets and Ruffer were interviewed by Investors’ Chronicle in April. Personal Assets pointed to upping equity exposure “at the margin” while Ruffer manager Jasmine Yeo said the team had not chosen to “aggressively re-risk” the portfolio amid the big market falls of that month.
April updates for the three different trusts available on their websites offer us some more detail.
Ruffer argues that “a portfolio focused on protection and non-US assets looks eminently sensible”.
Personal Assets’ update points to “select opportunities” to invest in high-quality businesses. In total, the team increased the trust’s equity allocation by five percentage points in April.
Capital Gearing, meanwhile, notes that it has maintained a defensive stance with a focus on inflation protection.
Different flavours of equity risk
Asked about how the approaches differ between the trusts, Killik & Co’s Mick Gilligan notes that Ruffer’s share picks tend to have something of a value bias.
Personal Assets buys “high quality mega-cap direct equities”, favouring companies with pricing power and rarely backing cyclical shares. Manager Charlotte Yonge did highlight this preference in the IC Interviews podcast, pointing to Visa (US:V) as one holding that should demonstrate pricing power.
Gilligan meanwhile notes that Capital Gearing “very rarely invests in direct equities”. Instead, it tends to look for cheap markets or sectors via investment trusts, if discounts look attractive, or via tracker funds if not. The team also buys trusts focused on infrastructure and property.
Ruffer does have some cyclical names, from BP (BP.) to Asia-exposed insurer Prudential (PRU).
Note that it also has more direct exposure to Asia, principally expressed via a position in an MSCI China ETF.
Its biggest regional allocation is to the UK, which makes up 11 per cent of the fund, with Europe on 5.4 per cent, North America on 4.7 per cent and Asia on 3.1 per cent.
Ruffer’s biggest individual equity sector allocation, making up 4.2 per cent of the fund, is in financials, with 3.9 per cent in consumer discretionary shares. The other two trusts tend not to break out their equity exposure in this way.
Capital Gearing’s mixture of tracker funds and investment trusts includes the unusual North Atlantic Smaller Companies (NAS), which focuses on smaller companies principally based in the US and UK.
Personal Assets holds some big consumer goods names as well as some US tech plays. Looking beyond its top five it also holds Nestlé (CH:NESN) and Microsoft (US:MSFT).
As per regulatory demands, trusts do tend to reveal more information about their individual holdings in their annual and interim reports.
Capital Gearing’s report for the six months to 30 September 2024 notes that it held trusts such as hedge fund BH Macro (BHMG), infrastructure plays 3i Infrastructure (3IN), International Public Partnerships (INPP) and HICL Infrastructure (HICL), and Polar Capital Global Financials (PCFT). It also held the SPDR MSCI Europe Energy ETF (ENGE).
A Ruffer report covering the six months to the end of 2024 shows that the team diversifies pretty aggressively, with around 100 equity holdings.
Equity exposure is partly achieved via funds such as Ruffer Gold (GB00B8510Q93) and the China ETF mentioned above, but most positions are in individual companies.
Most of the positions account for less than 0.5 per cent of the portfolio apiece. Ruffer is therefore taking less stock-specific risk, though it will require deep resources to monitor so many different companies effectively.
Determining the exact driver of performance for the trusts can be difficult, given that they differ both by the equity exposure they take but also the diversifiers they favour.
But once those factors have been accounted for it’s worth noting Personal Assets is ahead of the others in terms of five-year share price total returns, as at 19 May, with a 25.3 per cent gain. That said, Capital Gearing and Ruffer are not far behind.