One of the biggest factors that concerns investors about putting their money into investment trusts rather than funds is their reputation for higher volatility, creating a higher chance of them losing their stake.
Here FE Trustnet looks at those trusts that have protected investors’ money the best during the two market crashes of the past decade – the Lehman crisis of 2008 and the dotcom crash of 2002.
Global – Ruffer Investment Company
This company launched in July 2004, and the graph of its performance since then against its IT Global Growth sector and the MSCI World index shows it took the 2008 crisis in its stride.
Performance of trust vs sector and index since launch
Source: FE Analytics
Out of the funds in the four global IT sectors the portfolio has the lowest max drawdown of -6.73 per cent over five years, meaning that if you had bought and sold at the worst possible moments this is all you would have lost.
In 2008 the fund gained 23.01 per cent, while the MSCI World index lost 17.92 per cent and the fund’s IT Global Sector lost 30.13 per cent.
Not a single other trust in the four sectors made money in that calendar year.
The portfolio’s managers, Hamish Baillie and FE Alpha Manager Steve Russell, invest in bonds as well as equities, with fixed instruments providing the four largest holdings as of March.
The managers are 24 per cent in Japanese stocks – a significant overweight position, illustrating that they’re unafraid to take a strong contrarian approach.
Ruffer Investment Company has an annual management charge (AUM) of 1 per cent, and is currently trading on a premium of 3 per cent.
Personal Assets Trust
The Personal Assets Trust has been around longer than its Ruffer rival, and over ten years it has the lowest max drawdown in the four global sectors – 22.63 per cent.
That figure was achieved in the most recent five years, meaning over that time frame the trust is second only to the Ruffer Investment Company.
It offers investors a way to access the investment strategy of FE Alpha Manager Sebastian Lyon
, who has run the portfolio since 2009 but whose Trojan
fund is currently closed to new investors.
Personal Assets lost just 3.24 per cent in 2008, the second-lowest amount in the four sectors, and 8.71 per cent in 2002, putting it in the top quartile.
The trust has made 102.22 per cent over ten years with the lowest annualised volatility in the IT Global sector over that period, 11.44 per cent.
It has a total expense ratio (TER) of 1.15 per cent, and is on a premium of 1.3 per cent.
UK – Capital Gearing IT
This is the only trust in the five UK sectors to have made money in 2008, recording gains of 4.72 per cent for the year.
During the dotcom crash it performed a similar trick, being one of only two to break even in 2002, when it rose 3.24 per cent.
The closed-ended fund’s max drawdown of 10.92 per cent is the best over ten years, as is its volatility of 11.85 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It’s been headed up by industry stalwart Peter Spiller since 1982, who runs a highly diversified portfolio of equities and bonds. The trust’s top-10 holdings account for less than 10 per cent of assets under management (AUM), which is extremely rare.
The trust, which is currently trading on a premium of 6.56 per cent, appeared in FE Trustnet’s list of the best trusts on a risk/return basis
back in May.
Schroder Income Growth IT
Picking a second UK-focussed fund is tough given the degree of Capital Gearing’s outperformance.
Schroder Income Growth was second best in terms of its 2008 performance and fourth best in 2002, when it lost -3.17 per cent.
It has top quartile scores for volatility – 16.81 per cent – and max drawdown
35.58 per cent.
In 2008, when the FTSE All Share lost 29.93 per cent, and the average trust in IT UK Growth & Income
lost 36.49 per cent, Schroder Income Growth lost only 12.89 per cent.
The portfolio also protected investors well in 2002, losing the least of any trust in its sector – just 3.17 per cent.
While it doesn’t have the reputation or track record of Spiller’s Capital Gearing IT, the fact it’s on a discount of 4.8 per cent may tempt some investors. Its income focus is also a big draw; according to FE data, it’s got a one year historic yield of 5.32 per cent.
Sue Noffke has headed up the trust since July 2011.
Emerging Markets – Aberdeen Asian Income
Emerging market trusts deserve their reputation for higher risk, with some eye-watering max drawdown figures substantially higher than the sectors already considered.
Aberdeen Asian Income, launched in 2005, is the least risky in these terms, with a max drawdown of just 30.55 per cent and five-year annualised volatility of 18.62 per cent – the lowest in the emerging markets sector by some distance.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
In the meantime it has produced gains second only to the Aberdeen Asian Smaller Companies IT
among emerging market trusts over five years, making investors 117.28 per cent.
It’s currently trading on a premium of 5.14 per cent, and has a yield of 3.56 per cent.