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.
Steady positive returns
Low discount volatility
Holds less volatile assets
No performance fee
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)
PRICE | 43,700p | GEARING | 0% |
AIC SECTOR | Flexible Investment* | NAV | 42,998.4p |
FUND TYPE | Investment Trust* | PRICE PREMIUM TO NAV | 1.60% |
MARKET CAP | £1.21bn | YIELD | 1.30% |
No OF HOLDINGS | 29** | ONGOING CHARGE | 0.91%* |
SET-UP DATE | 22 July 1983* | MORE DETAILS | patplc.co.uk |
Source: Winterflood as at 25 February 2020, *AIC, **PATAC.
Cumulative performance
Fund/benchmark | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) |
Personal Assets Trust NAV | 10 | 12 | 32 |
Personal Assets Trust share price | 10 | 12 | 34 |
FTSE World index | 15 | 30 | 76 |
FTSE All Share index | 6 | 14 | 29 |
Source: Winterflood, as at 25 February 2020
Annual performance (%)
Fund/benchmark | 2020 YTD | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
Personal Assets Trust NAV | 1.65 | 9.82 | -2.99 | 6.07 | 12.04 | 3.47 | 7.84 | -2.14 | 3.58 | 9.29 | 14.39 |
Personal Assets Trust share price | 1.41 | 10.16 | -3 | 5.69 | 14.24 | 1.72 | 10.27 | -4.75 | 4.16 | 8.32 | 14.42 |
FTSE World index | -0.44 | 22.81 | -3.09 | 13.34 | 29.59 | 4.34 | 11.29 | 22.36 | 11.83 | -5.79 | 16.28 |
FTSE All share index | -3.25 | 19.17 | -9.47 | 13.1 | 16.75 | 0.98 | 1.18 | 20.81 | 12.3 | -3.46 | 14.51 |
Source: Morningstar, as at 31 January 2020
Top 10 holdings (%)
Cash/UK T-bills | 23.1 |
Gold bullion | 8.8 |
US TIPS 1.125% 2021 | 7.2 |
US TIPS 0.125% 2022 | 5 |
Microsoft | 4.8 |
US TIPS 1.25% 2020 | 4.2 |
US TIPS 0.125% 2021 | 4 |
Unilever | 3.6 |
US TIPS 2.375% 2025 | 3.5 |
US TIPS 0.125% 2020 | 3.4 |
Source: PATAC, as at 31 January 2020
Asset allocation (%)
Index linked bonds | 30.18 |
Cash/equivalents | 26.26 |
US equities | 21.72 |
Gold bullion | 8.77 |
UK equities | 8.65 |
Swiss equities | 2.95 |
Canadian equities | 1.32 |
Property | 0.14 |
Source: PATAC, as at 31 January 2020