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The trusts that have lost you the least money over 10 years

27 April 2015

Using data from FE Analytics, FE Trustnet looks across all of the mainstream AIC sectors to see which closed-ended funds have had the lowest maximum drawdowns over the past 10 years.

By Alex Paget,

Senior Reporter, FE Trustnet

Ruffer Investment Company, Capital Gearing and Personal Assets are among the investment trusts which have had the lowest maximum drawdowns over the past decade, according to the latest FE Trustnet study.

One of the major criticisms of investment trusts, certainly relative to their open-ended rivals, is that they can be higher risk.

The major reason for this is their structure. As their NAVs fall, investors can be hit with a “double-whammy” effect of widening discounts, owing to the fact they are publically listed companies.

However, though trusts tend to fall more during turbulent markets, a number of closed-ended funds have demonstrated an ability to consistently protect their shareholders’ capital.

Therefore, given FE Trustnet looked at the open-ended funds which had the lowest maximum drawdown – which measures the most an investor could have lost if they had bought and sold at the worst possible times – over the past 10 years in an article last week, this time around we run the same study for investment trusts.

 

Source: FE Analytics

As the table above shows, the Ruffer Investment Company has had the lowest maximum drawdown over the last 10 years – out of the 167 investment trusts which have a long enough track record– as the most investors could have lost over that time is just 13.83 per cent.

The trust, which is headed-up Hamish Baillie and FE Alpha Manager Steve Russell, is a multi-asset portfolio which prioritises capital protection.

According to FE Analytics, Ruffer Investment Company has returned 153.73 per cent over the period in question and has delivered gains in each of the last 10 years – one of which was during the crash year of 2008, when it made 23.01 per cent due to the managers’ correct macroeconomic calls.

While other IT Global trusts have delivered a higher total return over the past decade, the Ruffer portfolio has had the lowest annualised volatility and the third best risk-adjusted returns in the sector over that time.

However, due to its positioning last year – such as overweight positions in Japan and underweights in US equities and traditional fixed income – the trust is currently trading on a 2.7 per cent discount to NAV due to its recent lacklustre returns.

The team at Ruffer, who were recently interviewed by FE Trustnet, currently hold 20 per cent in Japanese equities, 36 per cent in index-linked bonds, 5 per cent in gold and gold equities and 6 per cent in cash.

Second on the list is another multi-asset portfolio, namely Peter Spiller’s Capital Gearing Investment Trust which has had a maximum drawdown of 15.25 per cent over the last 10 years.

Like the team at Ruffer, Spiller primarily focuses on downside protection as he runs the portfolio with the mindset that it is his own personal savings pot.


While the trust, which strangely sits in IT UK All Companies sector despite the fact it is largely invested outside of the UK equity market, has underperformed from a total return point of view over the longer term, the graph below shows Spiller hasn’t exposed his investors to too much volatility.

Performance of trust versus sector and index over 10yrs

 

Source: FE Analytics

Those returns include gains of 4.72 per cent in 2008, when the FTSE All Share fell 30 per cent and sector average fell 39 per cent.

Spiller is very bearish on the current market and he recently told FE Trustnet that, given the current expensive valuations and need for higher levels of inflation, no asset class will make a positive real return over the coming decade.

“Markets are enormously distorted. In our view, there is no asset class out there that will make a positive real return over the next 10 years. We can make that statement with certainty for bonds, but we believe it is generally true across all other asset classes,” Spiller said.

To protect investors, Spiller currently holds 27 per cent in index-linked government bonds, 9 per cent in cash and 25 per cent in convertible debt. He holds 28 per cent in equities, which is solely through investment trusts such as North Atlantic Smaller Companies and M&G High Income.

The final trust to make the top three on the list is Sebastian Lyon’s Personal Assets Trust, which again is a defensive multi-asset portfolio. However, unlike the two closed-ended funds mentioned so far, the board on Personal Assets implements a zero discount policy which will have helped the trust’s capital preservation characteristics.

Lyon has come under criticism of late due to the poor performance of his trust since he took charge in 2009, which has resulted from his bearish positioning in what has been a largely rising market.

Nevertheless, Personal Assets’ maximum drawdown of 22.63 per cent over the past 10 years is an impressive feat given the varying market conditions over that time. Despite Lyon not being in charge for the full period, the trust has always had a defensive bias.

Like in the study last week when we looked at open-ended funds, healthcare and US trusts also feature on the list in the form of the Worldwide Healthcare Trust and JP Morgan American IT.

It is understandable why those two portfolios feature, given that those two asset classes have been through somewhat of a purple patch over the past decade. The S&P 500, for example, didn’t fall as far as other equity indices during the financial crisis and has since posted six consecutive calendar years of positive gains.

Healthcare, on the other hand, is seen as a more defensive sector than others and the index is largely weighted to the top-performing US equity market.

Outside of those names, though, other more defensive equity managers appear on the list. They include FE Alpha Manager Nick Train’s highly sought-after Lindsell Train IT and FE Alpha Manager Mark Barnett’s Keystone IT.

Coming in 10th on the list with a maximum drawdown of 31.16 per cent is Murray International, which is headed-up by notable market bear Bruce Stout.

Stout has long viewed the market as “distorted” thanks to years of unprecedented central bank intervention and has therefore focused primarily on capital preservation over the medium term – as he told FE Trustnet recently.

“In the current hostile and unforgiving environment for corporate profitability, financial markets appear oblivious to problematic fundamental distortions as they are hypnotically hoisted higher by central bank manipulation,” Stout said.

He added: “Against such a complacent backdrop, the portfolio remains widely diversified and focused on capital preservation.”


 

Despite Stout’s bearish views, the trust has also been the best performing IT Global Equity Income trust and has comfortably beaten its composite benchmark – FTSE World UK and FTSE World ex UK 60/40 split – over the past 10 years.

Performance of trust versus sector and composite benchmark over 10yrs

 

Source: FE Analytics

It’s not all defensive trusts which feature on the list, however, as though it may come as a surprise to many – the closed-ended fund with the seventh lowest maximum drawdown over the past 10 years (at 27.78 per cent) is HG Capital – which sits in the IT Private Equity sector.

This is an impressive achievement, given its average peer’s maximum drawdown has been more than 65 per cent over that time.

To illustrate the performance of HG Capital, which invests directly in unquoted companies, has been the fourth highest-returning portfolio in the sector and has beaten its FTSE All Share benchmark over the last 10 years with returns of 175.30 per cent.

 

 

Source: FE Analytics

Six of the 10 trusts with the highest maximum drawdown scores over the last decade come from the Private Equity sector.

They include JZ Capital Partners, SVG Capital and Candover Investments, which have had eye-watering maximum drawdowns of 90.15 per cent, 92.02 per cent and 95.26 per cent, respectively, over the period in question.

They are joined on the list of trusts which have lost the most possible amounts of money over the last 10 years by other higher risk portfolios such as the Small Companies Dividend Trust and Vietnam Opportunity. 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.