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Preserve your wealth with trusts

The best wealth preservation trusts and how they can help you
Preserve your wealth with trusts
  • Wealth preservation trusts look prepared for inflation
  • They are a good core holding for a very uncertain outlook

There’s a lot to learn from wealth preservation investment trusts, which broadly aim to protect and grow assets in real terms over time. After all, shouldn’t that be what all of us, ultimately, aim to achieve? While there are hundreds of open-ended funds that target an absolute return or take a multi-asset approach for long-term growth, a handful of investment trusts focusing specifically on the needs of private individuals look like the most attractive options.  

There are four investment trusts that stand out as wealth preservers: Personal Assets Trust (PNL), Capital Gearing Trust (CGT) and RIT Capital Partners (RCP), which are in the IC Top 100 Funds list, and Ruffer Investment Company (RICA) – the youngest of the four, established in 2004.  

In their latest commentaries, all of these trusts’ managers strike a cautionary tone. Sebastian Lyon, manager of Personal Assets Trust, points out that last year markets were bailed out by policy makers’ largesse, and profits in aggregate have fallen while valuations have risen. “A strong economic recovery is needed to justify where we are today,” he cautions. 

[Read our interview with Sebastian Lyon in the issue of 22 January]

The managers of RIT Capital Partners, a trust set up to manage the wealth of the Rothschild family, agree that significant economic growth is needed, adding that “there are many reasons to doubt that this will occur, not least a frugal private sector, uncertainty around inflation, and rising geopolitical and societal tensions”. 

Capital Gearing Trust’s latest quarterly report is dominated by an explanation of Charles Goodhart and Manoj Pradhan’s recent book The Great Demographic Reversal, which argues that we are on the brink of a new era of inflation. Ruffer, meanwhile, surprised the investment community by dipping its toes into cryptocurrency bitcoin towards the end of last year, as an insurance policy against the devaluation of the world’s major currencies. The move raised eyebrows, but has paid off so far.

With mounting debt, the global economy looks very fragile but, as we discussed in a recent feature assessing signs of a stock market bubble, there are good reasons why areas of the stock market are highly rated. For many investors, a wealth preservation trust can be a useful core holding in a portfolio. As Ryan Hughes, head of active portfolios at broker AJ Bell, puts it: “many direct investors are not likely to have the inclination to decide when it’s right to allocate to index-linked bonds or gold, for example, and therefore using a trust such as these can take away those headaches”. 


How do they compare? 

These trusts take different approaches to wealth preservation. The two most similar in terms of performance have been Personal Assets and Capital Gearing. Personal Assets, the larger of the two, had 42 per cent in equities, 35 per cent in index-linked bonds, 12 per cent in gold-related assets, and the remainder of its assets in cash and UK treasury bills at the end of December. It differs from the other wealth preservation trusts as its equity portfolio is mainly invested in direct shareholdings. Lyon looks for companies that are resilient, and generate predictable and recurring revenues from a variety of essential activities. A fifth of its equity allocation is in the UK, and most of the rest is in the US. Microsoft (US:MSFT), Unilever (ULVR) and Alphabet (US:GOOGL) made up 13.3 per cent of the trust's assets at the end of December.   

Capital Gearing Trust had 19 per cent of its assets in equities at the end of January, a large proportion of which were held via exchange traded funds (ETFs). It has 21 per cent of its assets in real estate investment trusts (Reits) and other property assets, 30 per cent in index-linked government bonds, 10 per cent in preference shares and corporate debt, 8 per cent in cash, and 5 per cent in conventional government bonds and gold. Peter Spiller has managed the trust since 1982, making him one of the city’s longest serving fund managers, and he and his team are much respected for consistently meeting their objectives over the long term.      

Ruffer Investment Company, which was launched to allow private investors who weren’t clients of the wealth manager which runs it to get access to its process, has been the laggard in terms of performance. This may be because the trust has the highest UK weighting of the four, with 17 per cent invested in UK equities and 22 per cent in overseas equities. The trust has 30 per cent of its assets in index-linked bonds – almost a third of which are long-dated – and 8 per cent in gold and gold equities.  

RIT Capital Partners, meanwhile, is a different beast from the others, and has had better returns over the long term albeit with higher volatility. The trust has a degree of hedging, with 40 per cent of its assets in listed equities, 11 per cent in listed hedge funds and 25 per cent in private equity at the end of November. Absolute return and credit made up most of the rest, with North America accounting for 39 per cent of the trust’s geographical exposure and the UK only 7 per cent.   

Lord Rothschild stepped down as chairman and director in 2019, having first been appointed chairman of the Rothschild Investment Trust, RIT’s predecessor, in 1971. Priyesh Parmar, associate director at brokerage Numis Securities says: "We believe the transition was well managed and that the new team is well placed to continue to manage RIT using the same capital preservation approach, utilising their deep relationships with selected investment managers and financial institutions.” 


Wealth preservation trusts' key statistics
TrustAssetsDiscount/Premium to NAVYield10-year share price standard deviation10-year annualised share price performance10-year annualised NAV return
Capital Gearing Trust£690m3.0%0.5%0.9%5.2%6.30%
Personal Assets Trust£1.41bn1.1%1.2%0.4%5.7%5.70%
RIT Capital Partners£3.38bn-6.1%1.6%1.0%7.0%8.30%
Ruffer Investment Company£497m0.9%0.7%0.6%4.2%4.70%
Source: Winterflood, 12.02.21


Which ones look best? 

With wealth preservation funds, measuring volatility is as important if not more important than assessing their total returns. If they do not prove resilient in periods of bear markets, they are probably not worth holding instead of conventional equity funds which could in time deliver stronger returns. 

Personal Assets Trust is a favourite among investors, as it has had the lowest volatility of the four and strong performance since Lyon took over as investment adviser in March 2009. The trust also operates a “zero-discount” policy, as does Capital Gearing Trust, which reduces share price volatility. The managers control the discount or premium to net asset value (NAV) by buying back shares or issuing new shares, as necessary.  

While RIT Capital Partners does not always succeed in not losing money in any given year, it has served its long-term investors very well. James Carthew, head of investment company research at QuotedData, says that the Rothschild family connections give it access to some of the world’s best managers.

Carthew says: “The thinking is genuinely long term and it is creative about the way that it manages money. I think it is fair to say that it is not well understood by many investors and that is maybe why its discount is relatively volatile.” The trust was trading at a 6.1 per cent discount to NAV on 12 February, comfortably wider than its long-run average, looking like an attractive entry point.