Which ‘wealth preservation’ trust has protected investors best?

These four trusts take an ‘unconstrained’ investment approach to make money regardless of market conditions.

Investors turn to “wealth preservation” trusts to protect their portfolios when markets turn south. But facing the dual threat of slowing economic growth and inflation, not all of them have delivered. 

The most well-known, in order of market size, are: RIT Capital Partners (£3.7 billion); Personal Assets (£1.8 billion); Capital Gearing (£1.1 billion); and Ruffer Investment Company (£955 million).

Share price and net asset value performance (NAV) since the start of the year varies widely. At the top of the table is Ruffer, returning an NAV gain of 5% and share price return of 10.5%. Next is Capital Gearing, delivering NAV returns of -0.5% and a similar share price return. 

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Close behind is Personal Assets with an NAV drop of 2.5% and share price drop of 1.5%. Finally, RIT has dropped 4.5% in NAV terms and 13% in share price terms, putting it on an 11% discount.

For comparison, the FTSE 100 is up 2%, the S&P 500 is down 6.5% and the global MSCI World index is 7% lower in 2022. 

As shown by the divergence in returns, all these wealth preservation portfolios are different. We lift the bonnet on each of these trusts to understand why some have protected investors better than others.

Ruffer Investment Company

Top performer Ruffer owes its success to savvy bets on energy stocks and the directions of interest rates, via interest rate options.

The management team has been confident for some time that inflation is coming and has made a number of investments to profit from this. 

In its latest update to investors at the end of April, portfolio managers Duncan MacInnes and Hamish Baillie, said: “Having predicted the return of inflation for many years, we now doubt the resolution of central banks to raise rates sufficiently far to choke it off. However, there is little doubt that interest rates are set to rise further.”

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One way they are profiting from rising rates is its investment bucket called “illiquid strategies and options”, making up 13% of the portfolio. Here, it can use financial derivatives to bet that rates will rise. 

They said: “Looking further back at year-to-date performance, there is some cause for satisfaction – up over 4% when almost all asset classes are well into negative territory. This month’s gold stars for achievement went once again to the protection assets: interest rate options and credit protections.”

Its two largest stock investments are Shell (LSE:SHEL) and BP (LSE:BP.). Both have risen more than 20% this year due to higher oil and gas prices. The trust also owns a range of “defensive stocks” that have been performing well, including GlaxoSmithKline and Vodafone.

MacInnes and Baillie write: “An honourable mention should go to the company’s equity holdings as energy stocks and what we call ‘value defensives’ (telecoms, healthcare and pharmaceuticals) made gains. 

“Importantly of course, in any kind of bear market, it is what you don’t own that matters more than what you do own. Our avoidance not just of profitless tech, but also of outrageously profitable (but expensive) tech, has allowed our equities in aggregate to make a positive return so far in 2022.”

Capital Gearing

In second place is Capital Gearing, a member of interactive investor’s Super 60 list. The goal of the trust is “to preserve, and over time to grow shareholder’s real wealth”. To do this it is making a big bet on index-linked bonds, at 32% of the portfolio. Predicting stubborn inflation, portfolio manager Peter Spiller is finding refuge in fixed income that links payouts to the inflation rate.

For the equity side of the portfolio, currently at 44% compared with 36% at Ruffer, Spiller prefers funds to individual stocks, which spreads risk.

His largest positions include the Japanese stocks ETF iShares MSCI JP ESG Screened, the SPDR MSCI Europe Energy ETF for oil companies, and the investment trust North Atlantic Smaller Companies. Individual equities are also diversified, such as property portfolios Grainger and Vonovia. 

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Speaking to interactive investor in March, Spiller said he also liked oil shares: “Oil shares are cheap if you assume the price of a barrel can be sustained at $70. Oil stocks will generate a lot of cash and return it to shareholders, as well as invest in renewable energy.

“Oil shares are also good value because of the rise of ethical investing. This has also meant less money going into developing new oil fields, which means that supply is lower and prices for oil and gas will be higher. While the spike in the oil price today is due to the war, taking a five-to-seven-year view, prices will stay high,” he said. 

Personal Assets

Gold has been the secret sauce for Personal Assets this year. At 9.2% of the portfolio, it boosted the fund when Russia invaded Ukraine. Gold has fallen 12% since its 2022 high of around $2,000 an ounce, but should act as a good hedge for Personal Assets if there is more geopolitical tension.

Unlike Ruffer, which invests mostly in British stocks (half of its allocation to equities at 16.6%), Personal Assets is a big fan of US names and has 30% invested in international stocks overall, with just 6% in the UK. 

The trust, managed by Troy Asset Management, is more willing to take large single bets on stocks than its rivals. It has 5% positions in technology giants Alphabet and Microsoft, as well as a big allocation to consumer staples groups, such as Diageo, Nestle and Unilever. 

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This increases risk, but the management team believe in the ability of such companies to keep growing their profits even during an economic slowdown.

It takes a more “quality growth” approach to stock picking, preferring firms that are expensive over cheap “value” stocks that are due a comeback, but may have less impressive business models. 

Like Ruffer and Capital Gearing, it is protecting against inflation with index-linked bonds, with around one-third of the portfolio invested there.

RIT Capital Partners

The investment trust that manages the wealth of the Rothschild family takes a different approach to investment than its “wealth preservation” rivals. It is more akin to a university endowment, owning a wide range of funds, rather than having a portfolio manager make their own stock and bond investments. 

Its equity investments make up about two-thirds of the portfolio, and are split between listed stocks (28%) and unquoted stocks, of which 12% is direct ownership and 26% via funds. 

It also has an 11% allocation to hedge funds, as well as 18% in “absolute return & credit”, which in theory perform well when markets fall. 

Only reporting its full portfolio twice a year, its latest results for 2021 showed that its biggest investments included hedge fund BlackRock Strategic Equity, South Korean consumer goods firm Coupang, and venture capital investment fund Thrive. 

RIT is far more complicated than its wealth preservation peers as it owns funds that are normally off limits to retail investors.  While providing good access to this part of the market for everyday investors, it pushes up costs that are passed on to shareholders. The trust’s ongoing charge figure is 1.59%. In contrast, yearly fees of 1.08%, 0.73% and 0.58% are levied by Ruffer, Personal Assets and Capital Gearing.

Another key difference is its high allocation to stocks, which makes it more likely to perform well in rising markets but also fall when shares drop.

‘Wealth preservation’ trusts: a snapshot

Source: FE Analytics, 17 May 2022. Past performance is not a guide to future performance.