Top 100 Funds: Wealth preservation (7 Funds)

Capital Gearing Trust (CGT)

Capital Gearing Trust is an outstanding example of what a wealth preservation fund should do, having made positive net asset value (NAV) returns for the past 10 calendar years and positive share price returns in all but one. This includes 2008 – the height of the financial crisis – when it made NAV and share price returns of 5.76 per cent and 4.72 per cent, respectively, at the same time as the FTSE All-Share fell 30 per cent and FTSE World fell 18 per cent.

Capital Gearing Trust also has a discount control policy whereby it uses share buybacks or issues in normal market conditions to try to make its share price trade as close as possible to its NAV.

The trust aims for capital growth in absolute terms rather than relative to a particular stock market index, and preserving shareholders’ wealth is an important consideration. It invests in other funds but still has a reasonable ongoing charge of 0.77 per cent. The trust also invests directly in assets such as index-linked government bonds, which accounted for 35 per cent of its assets by value at the end of July. And it can use derivatives such as warrants, options, swaps and forward contracts.

“Capital Gearing continues to be very defensively positioned with a low allocation to equities and an emphasis on inflation protection in its fixed-income portfolios,” says Ewan Lovett-Turner, director, investment companies research at Numis Securities. “Capital preservation remains the key current objective until valuations return to more normal levels. Its managers remain defensively positioned, meaning that the trust could well lag behind rising equity market indices. But we regard its management team highly and the long-term track record is exceptional.”

Personal Assets Trust (PNL)

Personal Assets Trust has made positive NAV and share price returns in most calendar years since Sebastian Lyon started running it in 2009, with the exception of 2013.

“Personal Assets has less than half of its assets invested in equities, with substantial exposure to US Treasury Inflation Protected Securities, UK gilts and gold,” says Ewan Lovett-Turner at Numis Securities. “Portfolio turnover is extremely low, and equity exposure is focused on UK and US blue-chip companies with pricing power in defensive industries, for example tobacco stocks, Coca-Cola (US:KO), Nestlé (Swi:NESN) and Microsoft (US:MSFT). Since Sebastian Lyon took over in March 2009, the NAV total return has been 8.8 per cent a year, which compares with a return of 13.6 per cent a year for the FTSE All-Share index. This is a credible track record given the trust’s low exposure to equity markets. Its zero-discount policy means that there is also minimal discount volatility.”

The trust tries to keep its shares trading at close to its NAV via share buybacks and issues.

Invesco Perpetual Global Targeted Returns (GB00BJ04HL49)

Invesco Perpetual Global Targeted Returns targets an annual gross return of 5 per cent above UK three-month Libor (the London interbank offered rate) over a rolling three-year period. It also aims for volatility less than half that of global equities as measured by MSCI World index, and its annualised volatility over the three previous years was 3.33 per cent at the end of June, compared with 12.35 per cent for global equities.

The fund launched in 2013 and in each calendar year since then has delivered a positive return. It is run by Invesco Perpetual’s multi-asset team, of which senior members David Millar, Dave Jubb and Richard Batty were part of the team that used to run Standard Life Global Absolute Return Strategies (GB00B7K3T226) when that fund was doing well. “Invesco Perpetual’s multi-asset team, led by David Millar, is well resourced and building a solid record of delivering uncorrelated positive returns,” says Rob Morgan at Charles Stanley.

The fund’s managers invest in a wide range of asset classes including equities, bonds and currencies, and combine them into a single, risk-adjusted portfolio using a range of financial instruments. They test it rigorously against extreme economic scenarios.

Invesco Perpetual Global Targeted Returns has a reasonable ongoing charge of 0.82 per cent and, unlike some wealth preservation funds, no performance fee. 

Janus Henderson UK Absolute Return (GB00B5KKCX12)

Janus Henderson UK Absolute Return has made positive returns in each of the past eight calendar years, and positive cumulative returns over one, three and five years.

The fund aims to provide a return greater than zero, typically over a 12-month period. It usually invests at least 60 per cent of its assets in shares or derivatives of UK companies. Its managers take long positions in shares they think will rise and short positions – bets on the price falling – in shares they think will fall. It can make extensive use of derivatives to get its long and short investment exposure.

“Managers Ben Wallace and Luke Newman are pragmatic in their approach and can shift the style emphasis depending on where they are finding the most attractive opportunities,” says Rob Morgan at Charles Stanley. “They adopt a less mechanical process than some long/short funds, so there is more scope for them to use their individual flair for stock selection. With this greater freedom comes the possibility of larger positive and negative returns than some of the fund’s sector peers. Since inception, it has delivered a positive return in each calendar year. Concerns over its size remain, but to date performance has not been impacted, and the expansion of its investment universe in November 2016 meaning non-UK equities [can account for] up to 40 per cent of its assets [up from 20 per cent] has been accretive to returns.”

A downside to this fund is that on top of its ongoing charge of 1.06 per cent it has a performance fee, which in the fund’s last financial year amounted to 0.74 per cent for this share class. But in view of its outstanding record of delivering absolute returns it seems worth paying for.

JPMorgan Global Macro Opportunities (GB00B4WKYF80)

We have decided to keep this fund in the IC Top 100 Funds, but will carefully monitor it for any deterioration in performance following the departure of Talib Sheikh, one of its senior managers, earlier this year to join Jupiter Asset Management. JPMorgan said there wouldn’t be any changes to the fund’s investment process and it would continue to be run by the remaining co-managers. They are James Elliot, who is also chief investment officer of JP Morgan Asset Management's multi-asset solutions team’s international business and has worked at that company since 1995, and Shrenick Shah. The company added that its multi-asset funds are run via a team-based approach with over 80 investment professionals contributing to research, design, portfolio management and delivery. As a result, some analysts think it is unlikely that Mr Sheikh’s departure will be detrimental to JPMorgan Global Macro Opportunities.

JPMorgan Global Macro Opportunities aims for positive returns over a rolling three-year period in all market conditions by investing in securities globally and using derivatives. It has been fairly successful in doing this and it is one of the best performing funds in the IA Targeted Absolute Return sector in terms of cumulative returns over one and five years.

It isn’t the smoothest of performers, but has achieved its medium-term return target of cash plus 7 per cent, annualised, gross of fees, with volatility below 10 per cent through diverse market environments. So for investors who can hold the fund for at least five years it still looks like a good option for wealth preservation over longer periods – as long as it keeps delivering following Mr Sheikh’s departure.

RIT Capital Partners (RCP)

RIT Capital Partners is a multi-asset investment trust that aims to deliver long-term capital growth while preserving shareholders’ capital. It invests in quoted and unquoted assets such as hedge funds, which private investors could not necessarily access.

The trust has made positive NAV returns in each of the past six calendar years, and over the first seven months of this year, and makes reasonable cumulative total returns, beating broad benchmarks such as the FTSE All-Share index over one and five years.

“Since inception in 1988, RIT Capital Partners has delivered an attractive return profile, participating in 75 per cent of market upside but only 39 per cent of market declines,” says Ewan Lovett-Turner at Numis Securities. “This has resulted in the NAV total return compounding at 11.2 per cent a year, significantly ahead of global equity markets. We are slightly wary of investing at the current premium (9.2 per cent at the end of August) but RIT Capital Partners remains one of our core long-term recommendations.”

The trust has been trading at a high-single-digit premium to NAV recently, and has been at a premium for much of the past two-and-a-half years. So if you are going to invest in it look out for a moment when it is on a lower premium or discount to NAV – as long as this doesn’t indicate there is a serious problem.

Newton Real Return (GB00B8GG4B61)

Newton Real Return has made positive returns in the past six calendar years, and positive cumulative total returns over one, three and five years, under the direction of lead manager Iain Stewart. However, at the end of June Mr Stewart stepped back from day-to-day management of the fund, which is now co-managed by Suzanne Hutchins, Aron Pataki and Andy Warwick.

Ms Hutchins was previously a deputy manager on this fund and is lead manager on BNY Mellon Global Real Return (IE00B90LS909), which is similar to Newton Real Return. Mr Pataki is a risk strategist in Newton’s real return team, who focuses on derivatives and hedging, and runs a sister version of BNY Mellon Global Real Return (IE00B70B9H10).

Mr Warwick joined from BlackRock, where he was co-manager of the BlackRock Dynamic Diversified Growth (GB00B823TT41), and manager of the BGF Flexible Multi-Asset (LU1822773989), BlackRock Balanced Growth (GB00B7XQBS82) and BlackRock Balanced Managed funds. He has 13 years of experience of running multi-asset funds, particularly in cross-asset-class research, macro input and portfolio construction. He has significant experience across asset classes, including equities, fixed income, commodities, credit, volatility and alternatives.

Mr Stewart will still work with Newton’s real return team on the direction of its strategy.

Newton funds tend to be run by teams well supported by many analysts rather than individual managers, via the company’s thematic approach. So a manager stepping down does not mean that there will be changes to the way they are run.

Newton says: “The strategy will continue to be based on its fundamental principles, but its approach will continue to evolve as it seeks to navigate an evolving financial landscape and exploits a broad opportunity set.”

We will monitor Newton Real Return’s performance carefully to see if less involvement from Mr Stewart has a detrimental effect.