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Top 50 Funds 2021: Wealth preservation

Our fund suggestions for wealth preservation
Top 50 Funds 2021: Wealth preservation

A fund that limits downside can be helpful in balanced portfolios in all market environments. Ongoing uncertainty, due to factors such as the coronavirus pandemic and the UK’s departure from the EU, means that limiting downside is more important than ever.


Capital Gearing Trust (CGT)

Capital Gearing Trust does exactly what wealth preservation funds should do, having made positive net asset value (NAV) total returns for the past 10 calendar years and positive share price total returns in all but one. The fund delivers a different pattern of returns to mainstream equity markets and can make positive returns when the latter are falling. In 2020, for example, the trust made NAV and share price total returns of 8 per cent, while the FTSE All-Share index fell nearly 10 per cent.

The trust aims to preserve, and over time to grow, its shareholders' real wealth and places greater emphasis on avoiding loss than maximising returns. 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 shares trade as close as possible to 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 30 per cent of its assets at the end of July, and gets a lot of its exposure to other assets via funds. The trust can also use derivatives such as warrants, options, swaps and forward contracts. 


Personal Assets Trust (PNL)

Personal Assets Trust has a good record of delivering positive returns, in line with its aim of protecting and increasing the value of its shareholders’ funds over the long term. For example, last year when the FTSE All-Share index fell nearly 10 per cent, this trust made NAV and share price total returns of about 8 per cent. 

Personal Assets Trust invests in a range of assets and at the end of June it had 43 of its assets in equities and 32 per cent in fixed income. Gold also features in the trust’s asset allocation because its manager, Sebastian Lyon, believes that it plays an important role in protecting capital. In July he commented that gold had “generated returns of over 11 per cent a year (in sterling terms) since we first invested for the strategy in 2005, and continues to provide a rare store of value in the form of an alternative currency that cannot be printed”.

The trust had 11 per cent of its assets in gold-related investments at the end of June. 

Personal Assets Trust typically trades at a slight premium to NAV, in line with its policy of trying to keep its shares trading at a price close to its NAV via share buybacks at a small discount and issues at a small premium to NAV.

“Under Sebastian Lyon’s management (since 2009) the fund has exhibited considerably lower volatility than the FTSE All-Share,” comment analysts at Winterflood. “The fund’s significant exposure to government bonds and gold means that it is likely to lag equity market rises. However, it should also continue to preserve capital in difficult markets and [is] a low-volatility vehicle that [should] deliver attractive absolute returns over the long term. While [its] asset allocation can reflect [Lyon’s] cautious outlook, stock selection is focused on equity growth companies. This bias has helped to drive Personal Assets Trust’s long-term performance.”


Janus Henderson Absolute Return (GB00B5KKCX12)

Janus Henderson UK Absolute Return has made a positive return in nearly every full calendar year since its launch in 2009, including in years when markets are down. Last year, for example, when the FTSE All-Share index fell nearly 10 per cent this fund made a total return of 2.43 per cent.

The fund aims for a return greater than zero, regardless of market conditions, over any 12-month period. It seeks to outperform the UK base interest rate, after charges, over any three-year period.

The fund invests in shares its managers think will rise and uses derivatives to take short positions in shares they think will fall.

Typically, at least 60 per cent of the fund’s exposure to long and short positions is to UK companies of any size and in any industry. Up to 40 per cent of the long and short exposure can be to non-UK companies.

A downside to this fund is its performance fee of 20 per cent of any returns it makes over the UK base interest rate, which can take its basic ongoing charge higher. For example, in the fund’s financial year to 31 May 2020, in addition to the 1.05 per cent ongoing charge it levied a performance fee of 0.15 per cent. 

However, the fund makes consistent positive returns, something many wealth preservation funds fail to do. And in years when Janus Henderson UK Absolute Return does not meet its targets the performance fee is not triggered.


Cumulative total returns
Fund/benchmark1yr (%)3yr (%)5yr (%)10yr (%)
Capital Gearing Trust share price14.4725.5245.0276.03
Personal Assets Trust share price10.2528.3532.4470.98
Janus Henderson Absolute Return4.818.7112.9259.78
IA Targeted Absolute Return sector average6.537.9911.6629.36
FTSE All Share index26.9511.3733.29110.23
MSCI World index26.2543.5090.01272.11
Source: FE Analytics as at 31 August 2021