Square Mile Investment Consulting & Research has added 18 investment trusts to its Academy of Funds, including two multi-asset strategies: Personal Assets Trust with an AA rating and Ruffer Investment Company with an A.
The £1.7bn Personal Assets Trust has outperformed equities significantly over the long term with much lower volatility. Over shorter horizons it has sometimes fallen behind stock markets because of the managers’ unwillingness to take on excessive risk.
Square Mile’s analysts said: “We believe this trust is a strong proposition for investors that are seeking a level of return similar to that of equities but are uncomfortable with the level of risk typically associated with investing in this asset class.”
The £1.1bn Ruffer Investment Company has delivered returns slightly below equities but with far less volatility over its almost 20-year track record. Its maximum drawdown is a third less than equity markets.
Ruffer made money for its investors when they needed it most, during the financial crisis of 2008 and the bear market of 2022, and was down only moderately during the Covid crash of 2020.
Square Mile expects Personal Assets to return 2-5% above inflation (as defined by the retail price index) over a five- to seven-year market cycle. It expects Ruffer to return 3-5% above cash over rolling five-year periods and to offer capital protection during market downturns.
Ruffer is seen as higher risk choice, scoring four out of five on Square Mile’s risk scale compared to one for Personal Assets.
Ruffer Investment Company holds growth assets (namely equities) alongside defensive assets, such as options and other derivatives to protect on the downside.
Ruffer (the investment firm, rather than the trust) believes that equities and especially US mega-cap tech stocks are overvalued so has positioned its portfolios for a stock market crash using put options on the S&P 500 and credit default swaps.
“The use of such options strategies sets this strategy apart and has been particularly and consistently successful in protecting investors' capital when it matters most,” Square Mile added.
The trust has a 20% exposure to the weak yen, which Ruffer expects to strengthen, and a large position in UK and US inflation-linked bonds to protect against future inflation. These positions have led to poor performance so far this year as markets continued to behave irrationally.
Managers Duncan MacInnes and Jasmine Yeo predict that “a darkening economic reality, combined with tight monetary policy in the UK and US and incrementally restrictive policy from the Bank of Japan, we think will ultimately cause a great, and quite possibly sudden, reversal of the market moves over 2023”.
Personal Assets Trust is also positioned defensively. Managers Sebastian Lyon and Charlotte Yonge of Troy Asset Management are sceptical about consensus expectations for a soft landing in the US and, like Ruffer, expect equity markets to come off the boil.
“Stock markets remain vulnerable to falling profits that result from weaker demand, combined with a rising discount rate on those profits,” the managers explained.
Personal Assets held 36% in US Treasury inflation-protected securities (TIPS) and 25% in short-dated gilts and Treasuries, 24% in equities, 11% in gold and gold-related investments, 3% in UK index-linked bonds and 1% in cash, as of 30 September 2023.
Ruffer ended September with 36% in short-dated bonds, 15% in illiquid strategies and options, 15% in equities, 11% in non-UK index-linked bonds, 8% in index-linked gilts, 7% in commodity exposure, 5.5% in cash and 2.5% in gold and gold equities.
Performance of trusts vs sector over 5yrs
Source: FE Analytics