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Top 100 Funds 2019: Wealth preservation

Our pick of the best funds for wealth preservation
Top 100 Funds 2019: Wealth preservation

A fund that can limit downside can be helpful in many balanced portfolios in all market environments. And with a very uncertain environment for reasons including an unclear future for the UK due to its scheduled departure from the European Union and historically high US equity markets, limiting downside is more important than ever. With poor returns from low-risk bonds, investors need to find other ways to diversify the equity and higher-risk portions of their portfolios. Multi-asset funds that look to reduce volatility and downside are an option, as are absolute-return funds that aim to deliver positive returns.


NEW ENTRANT: SVS Church House Tenax Absolute Return Strategies (GB00BNBNRF27)

Ms Schooling-Latter suggested adding SVS Church House Tenax Absolute Return Strategies. This multi-asset fund aims to make positive returns over rolling 12-month periods with low levels of volatility, as capital preservation is a key aim. The fund launched in 2007 since when it has a good record of delivering positive returns. The fund fell slightly in last year and in 2011, but this was less than broad indices such as the FTSE All Share, FTSE World and MSCI World.

The fund benchmarks itself against three month Sterling Libor and is considerably ahead of it over one, three and five years, as of 31 July. And its cumulative returns beat the IA Targeted Absolute Return fund sector average over three, five and 10 years, by quite some margin over the longer periods.

It invests in a range of assets including various types of bonds and fixed interest, infrastructure and equities.

“This is one of the few absolute return funds with a track record which goes back beyond 2008 and the global financial crisis,” comment analysts at FundCalibre. “[It is] run by two very experienced managers and is an extremely useful portfolio diversifier. SVS Church House Tenax Absolute Return Strategies is one of the few funds in its sector that targets an absolute return from diversification and risk management alone. It does not short sell securities or indices, or have a performance fee.”


Capital Gearing Trust (GCT)

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. The fund delivers a different pattern of returns to equity markets and can make positive returns when the latter are falling. For example, in 2018 it made respective NAV and share price returns of 2.23 per cent and 2.96 per cent, while the FTSE All Share and FTSE All World indices fell -9.47 per cent and -3.44 per cent respectively.

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. 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. This has proved successful and the trust typically trades at a slight premium to NAV.

Capital Gearing Trust invests directly in assets such as index-linked government bonds, which accounted for 35 per cent of its assets at the end of July, and gets a lot of its exposure to other assets via funds, although still has a reasonable ongoing charge of 0.77 per cent. The trust can also use derivatives such as warrants, options, swaps and forward contracts.

It has a highly experienced investment team, with co-manager Peter Spiller having run it since 1982.


Personal Assets Trust (PNL)

Personal Assets Trust aims to protect and increase the value of its shareholders' funds over the long term and has been successful in doing this: it has made positive NAV and share price returns in eight out of the past 10 calendar years.

The trust invests in a range of different assets and at the end of July it had 34.75 per cent of its assets in index-linked bonds, 20.63 per cent in cash and equivalents, 20.58 per cent in US equities and 8.87 per cent in gold bullion.

“Since Sebastian Lyon took over as investment adviser in March 2009 the NAV total return has been 8.5 per cent a year, which compares with a return of 12.1 per cent a year for the FTSE All-Share index,” say analysts at Numis Securities. “This is a credible track record given the trust’s low exposure to equity markets. The manager’s cautious approach and the fund’s emphasis on capital protection matches the risk/return objectives of many investors and it is reassuring to see the trust deliver consistent returns during a period of volatile equity markets. The zero-discount policy means that there is minimal discount volatility.”

The trust tries to keep its shares trading at close to its NAV via share buybacks and issues, and typically trades at a small premium to NAV.


RIT Capital Partners (RCP)

RIT Capital Partners is a multi-asset investment trust that aims for 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 directly, and has varied geographic exposure.

The trust has made positive NAV returns in nine out of the past 10 calendar years and positive share price returns in eight out of the past 10 years. For example, in 2018 when the FTSE All World and FTSE All-Share indices fell -3.44 per cent and -9.47 per cent, respectively, this trust made a NAV return of 0.78 per cent and its share price return only fell -1.01 per cent.

It also makes reasonable cumulative total returns and has beaten the AIC Flexible Investment sector (in which closed-end wealth preservation funds are typically included) average over one, three and five years to 31 July 2019.

“RIT Capital Partners has an exceptional long-term track record through an unconstrained investment approach, seeking to deliver long-term capital growth while preserving shareholders’ capital,” say analysts at Numis Securities. “It is differentiated from most investment trusts by its active management of both equity and currency exposure. Since the trust’s inception in 1988, it has delivered an attractive return profile, participating in 73 per cent of market upside, but only 38 per cent of market declines. This has resulted in the NAV total return compounding at 11.1 per cent a year, significantly ahead of global equity markets – the MSCI AC World and FTSE All-Share indices have delivered annualised Sterling total returns of 8.9 per cent and 8.6 per cent, respectively.

“The diversified nature of RIT Capital Partners’ portfolio and low equity exposure mean that the NAV is unlikely to keep up with equity indices during bull markets, as was the case during the first half of 2019. But the capital preservation benefits of its approach came to the fore in 2018 when it achieved a positive NAV total return. Its [investment] team, supported by its connections to leading third-party managers, is well placed to exploit opportunities that arise across a range of asset classes on a global basis. [So] we expect RIT Capital Partners to continue to deliver attractive risk-adjusted returns.”


Janus Henderson UK Absolute Return (GB00B5KKCX12)

Janus Henderson UK Absolute Return has made a positive return in nearly every calendar year since its launch in 2009. And its fall of -2.71 per cent in 2018 was considerably less than the FTSE All-Share index’s fall of -9.47 per cent.

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 – Ben Wallace and Luke Newman – take long positions in shares they think will rise and short positions – bets on the price falling – in shares they think will fall. They use derivatives to get long and short investment exposure.

“Although Janus Henderson UK Absolute Return Fund was launched in 2009, [its investment] strategy and [management] team have a much longer track record running another identical mandate,” say analysts at FundCalibre. “During that period, the returns have been remarkably consistent. We like this fund as, unlike many of its sector peers, it has achieved its stated aim, which is to provide equity-like performance, but with one-third of the volatility.”

A downside to this fund is its performance fee of 20 per cent of any returns it makes over the Bank of England base rate. This can take its basic ongoing charge a good deal higher. For example, in the fund's financial year to 31 May 2018 the ongoing charge of 1.05 per cent plus the performance fee of 0.33 per cent added up to 1.38 per cent, for this share class. But if it does not meet its target this will not be triggered and investors are compensated for it in years when it is.


Invesco Global Targeted Returns (GB00BJ04HL49)

Invesco Global Targeted Returns is a multi-asset fund that targets an annual gross return of 5 per cent above UK three-month Libor (London interbank offered rate) over a rolling three-year period. It also aims for volatility of less than half that of MSCI World index, and its annualised volatility at the end of June was 2.92 per cent over the previous three years, compared with 11.36 per cent for this index.

The fund launched in 2013, since when it has delivered a positive return in each full calendar year, with the exception of 2018. However its fall of 3.79 per cent last year was far less than the FTSE All-Share index’s fall of -9.47 per cent, and in line with MSCI AC World Index’s return.

The fund is run by Invesco’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’s multi-asset team, led by David Millar, is well resourced and building a solid record of delivering uncorrelated positive returns,” says Mr Morgan.

The fund’s managers invest in various assets including equities, bonds and currencies, and test it rigorously against extreme economic scenarios.

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


BNY Mellon Real Return (GB00BSPPWT88)

BNY Mellon Real Return has made positive returns in eight out of the past 10 calendar years. In the years it made negative returns these were slight and far less than the falls in broad indices. Last year, for example, the fund fell 0.19 per cent when the FTSE All-Share and FTSE All World indices fell -9.47 per cent -3.44 per cent, respectively. The fund’s cumulative returns over one, three, five and 10 years are positive and well ahead of the IA Targeted Absolute Return fund sector average.

Most of this defensive performance was achieved when Iain Stewart was lead manager, but he stepped back from day-to-day management of the fund at the end of June last year. He has continued to work with BNY Mellon’s real return team on the direction of its strategy, but will fully retire at the end of this year.

However, BNY Mellon funds tend to be run by teams well supported by many analysts rather than individual managers, via the company’s thematic approach.

BNY Mellon stated: “There will be no change to the fundamental principles on which the management of the real return strategy is based as a result of Iain’s retirement. The real return team and its investment process also benefit from the input of the wider 65-strong investment team, with Newton’s internal global research team, fixed-income team and thematic focus groups helping to provide the foundation for Real Return’s strategic direction and security selection.”

The fund aims for a total return of one-month Libor plus 4 per cent a year over rolling five-year periods, and a positive return on a three-year rolling basis. It invests in a diversified portfolio of various assets, typically a core of return-seeking assets such as equities, alongside positions that offset risk by dampening volatility and preserving capital.

The team who currently run the fund are very experienced. Since the beginning of 2018, Suzanne Hutchins has led BNY Mellon’s real return team. She was previously a deputy manager on this fund and is also lead manager of BNY Mellon Global Real Return (IE00B90LS909). During her first 14 years at Newton she worked closely with Mr Stewart and has worked in investment since 1991.

Co-manager Aron Pataki is a risk strategist in Newton’s real return team, who focuses on derivatives and hedging.

Andy Warwick is also responsible for final capital allocation decisions for BNY Mellon’s real return strategy. He joined the company from BlackRock last year, where he ran a number of multi-asset funds. He has 14 years of experience of running multi-asset funds, particularly in cross-asset-class research, macro input and portfolio construction. He has significant experience of asset classes including equities, fixed income, commodities, credit, volatility and alternatives.



JPMorgan Global Macro Opportunities (GB00B4WKYF80)

Last year we kept JPMorgan Global Macro Opportunities in the IC Top 100 Funds despite the departure of senior co-manager Talib Sheikh, as there wouldn’t be any changes to the fund’s investment process. It was still being run by James Elliot, chief investment officer of JP Morgan Asset Management's multi-asset solutions team’s international business, who had worked at that company since 1995, and Shrenick Shah who has worked at JPMorgan Asset Management since 2010.

However, in April Mr Elliott, who had a key role in developing this fund’s strategy, also left.

Mr Shah is very experienced, supported by a well-resourced team of analysts and has run this fund since its inception. The fund also held up well last year relative to broader markets.

But the loss of two senior team members, who include the architect of this fund’s investment strategy, brings uncertainty over how it will do in future so we are dropping it from the IC Top 100 Funds.


Fund/benchmark2019 YTD2018201720162015201420132012201120102009Ongoing charge (%)
Capital Gearing Trust (GCT) share price8.032.965.7915.401.233.25-8.9913.273.2019.1522.540.7**
Personal Assets Trust (PNL) share price9.92-3.005.6914.241.7210.27-4.754.168.3214.4219.400.91**
RIT Capital Partners (RCP) share price13.75-1.015.8314.1922.6913.3013.97-5.372.4215.1719.240.68**
Janus Henderson UK Absolute Return (GB00B5KKCX12)2.47-2.713.291.587.685.1517.604.830.094.13 1.38***
Invesco Global Targeted Returns (GB00BJ04HL49)2.02-3.791.283.561.598.63     0.82*
BNY Mellon Real Return (GB00BSPPWT88)10.68-0.112.424.101.243.545.773.850.0810.2211.070.7*
NEW ENTRANT: SVS Church House Tenax Absolute Return Strategies (GB00BNBNRF27)‡2.67-1.442.717.851.606.285.597.07-1.3810.1314.64 0.79*
IA Targeted Absolute Return sector average3.30-2.813.391.062.412.856.263.41-1.264.328.61 
FTSE All Share index12.40-9.4713.1016.750.981.1820.8112.30-3.4614.5130.12 
MSCI AC World index19.70-3.7913.2428.663.2910.6420.5211.03-6.6616.2119.86 
Source: FE Analytics as at 11 September, *Morningstar, **AIC, ***Janus Henderson.

‡ Data shown is for an older share class