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Mitigate market downside with Personal Assets Trust

Personal Assets Trust has successfully protected and increased the value of its assets
February 27, 2020

Market falls, such as those this week which may occur again as the coronavirus outbreak unfolds, shouldn’t be a problem if you are a long-term growth investor with a higher risk appetite. But if you are looking to preserve wealth or at least mitigate the downside of your investments’ overall return, it is a good idea to hold investments that do not move in sync with your equity holdings.

IC TIP: Buy at 43700p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points

Steady positive returns

Low discount volatility

Holds less volatile assets

No performance fee

Bear points

Lags rising markets

Options include Personal Assets Trust (PNL), which aims to protect and increase the value of its shareholders' funds over the long term. It has done this successfully, having made positive net asset value (NAV) and share price total returns in eight out of the past 10 calendar years.

Although investment trusts can experience discount volatility, this has not been the case with Personal Assets Trust because its board aims to keep its shares trading at close to NAV via share buybacks and issues, and it typically trades at a small premium to NAV.

“The zero discount policy means that there is minimal discount volatility [so] Personal Assets is an attractive long-term vehicle for cautious investors,” say analysts at Numis Securities.

The trust also doesn’t have any gearing – debt – which adds risk as it can compound losses in falling markets.

The trust invests in various types of assets including ones that should mitigate equity downside. For example, at the end of January it had about 30 per cent of its assets in index-linked bonds, 26 per cent in cash and equivalents, and 9 per cent in gold bullion.

Personal Assets Trust's manager, Sebastian Lyon, also invests in the shares of businesses that he thinks will perform well regardless of the wider political and macroeconomic backdrop. He favours sustainable and robust business franchises that are moderately valued, but offer growth in a low-growth world. These are typically financially productive companies such as large, global consumer facing companies like Unilever (ULVR), Microsoft (MSFT:NSQ) and Diageo (DGE).

Turnover of the trust's holdings is low, meaning that trading costs eat less into returns. It also has a reasonable ongoing charge of less than 1 per cent and – unlike some wealth preservation funds – no performance fee.

Since Sebastian Lyon became the trust’s manager in March 2009 the average annual NAV total return has been 8.4 per cent a year, compared with 12 per cent a year for the FTSE All-Share index. This is because the trust’s returns can lag in rising markets.

And because of its strict discount control policy there are not opportunities to pick it up at a discount to NAV.

But analysts at Numis say: “This is a credible track record given the [trust’s] low exposure to equity markets. The manager’s cautious approach and the [trust’s] emphasis on capital protection matches the risk/return objectives of many private investors, and it has been reassuring to see the [trust] deliver consistent returns during periods of volatile equity markets, such as late 2018 and summer 2019.”

Also, the aim of this investment trust is not to deliver outperformance, but rather to fall less or not fall when markets are going down – which it has done very reliably.

And although it is trading on a slight premium, there is not a great risk that it will fall to a wide discount for long periods because of its strict discount control policy – it should continue to trade close to NAV.

So if you are looking to hold some investments that could mitigate falls in more volatile holdings, Personal Assets Trust could be a useful addition. Buy.

 

Personal Assets Trust (PNL)

PRICE43,700pGEARING0%
AIC SECTOR Flexible Investment*NAV42,998.4p
FUND TYPEInvestment Trust*PRICE PREMIUM TO NAV1.60%
MARKET CAP£1.21bnYIELD1.30%
No OF HOLDINGS29**ONGOING CHARGE0.91%*
SET-UP DATE22 July 1983*MORE DETAILSpatplc.co.uk

Source: Winterflood as at 25 February 2020, *AIC, **PATAC.

 

Cumulative performance

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)
Personal Assets Trust NAV101232
Personal Assets Trust share price101234
FTSE World index153076
FTSE All Share index61429

Source: Winterflood, as at 25 February 2020

 

Annual performance (%)

Fund/benchmark2020 YTD2019201820172016201520142013201220112010
Personal Assets Trust NAV1.659.82-2.996.0712.043.477.84-2.143.589.2914.39
Personal Assets Trust share price1.4110.16-35.6914.241.7210.27-4.754.168.3214.42
FTSE World index-0.4422.81-3.0913.3429.594.3411.2922.3611.83-5.7916.28
FTSE All share index-3.2519.17-9.4713.116.750.981.1820.8112.3-3.4614.51

Source: Morningstar, as at 31 January 2020

 

Top 10 holdings (%)

Cash/UK T-bills23.1
Gold bullion8.8
US TIPS 1.125% 20217.2
US TIPS 0.125% 20225
Microsoft4.8
US TIPS 1.25% 20204.2
US TIPS 0.125% 20214
Unilever3.6
US TIPS 2.375% 20253.5
US TIPS 0.125% 20203.4

Source: PATAC, as at 31 January 2020

 

Asset allocation (%)

Index linked bonds30.18
Cash/equivalents26.26
US equities21.72
Gold bullion8.77
UK equities8.65
Swiss equities2.95
Canadian equities1.32
Property0.14

Source: PATAC, as at 31 January 2020