Personal Assets Trust, Ruffer Investment Company and RIT Capital Partners are some of the investment companies that will help form a new Association of Investment Companies (AIC) sector, to be launched early next year.
The AIC’s Flexible Investment sector will launch in January 2016 and provide a home for trusts “whose policy allows them to invest in a range of asset types.”
It will have 10 members when it opens: BACIT, BlackRock Income Strategies Trust, Capital Gearing Trust, Henderson Alternative Strategies Trust, Invesco Perpetual Select Balanced Risk, Miton Worldwide Growth Investment Trust, New Star Investment Trust, Personal Assets Trust, RIT Capital Partners and Ruffer Investment Company.
AIC chief executive Ian Sayers said: “We believe the new sector will help investors and advisers easily find and compare those investment companies which have the ability to invest in a range of assets. Importantly, the introduction of the Flexible Investment sector will also allow investors to compare investment companies with similar open-ended funds.”
In the following article, we take a closer look at some of the well-known members of the forthcoming peer group. Obviously the sector doesn’t exist yet, but we have created an equally weighted bespoke sector to allow some comparisons.
RIT Capital Partners
With total assets of £2.85bn, the trust is the largest member of the new sector. It was founded in 1961 as the Rothschild Investment Trust to serve the English branch of the Rothschild family for its investments outside their N M Rothschild & Sons bank, but changed to a publicly traded investment trust in 1988 under its current name.
The portfolio has the ability to invest in all asset classes but tends to focus on shares in publicly traded and privately held companies. It currently has 50 per cent of its portfolio in quoted stocks, with another 19 per cent in hedged equities, 14 per cent in absolute return and credit, and a total of 24 per cent in private equity.
Our data shows that the trust would have been top quartile in the new peer group over one, three, five and 10 years. Over five years, its 51.39 per cent total return makes it the best performing member of the sector, where the average gain has been 22.08 per cent. Its MSCI AC World benchmark has made 42.72 per cent over this time.
Performance of trust vs sector and index over 5yrs
Source: FE Analytics
In his latest update, Lord Rothschild – the trust’s chairman – said protecting investors’ capital is the managers’ priority at the moment, given the gloomy outlooks and events across the globe.
“Looking to the future, we are particularly mindful of our principle of capital preservation at a time of diminishing growth forecasts for world economies, while stock market valuations remain high,” he said.
“There are so many factors which cause concern: for example growth in China is slowing down, reflected in the worldwide sell off in commodities; we cannot but be alarmed by the political and economic situations in the Middle East, Greece, Russia and Ukraine; the burden of vastly increased and often unproductive debt must surely undermine prospects for future growth.”
RIT Capital Partners has ongoing charges of 1.22 per cent, which rise to 1.25 per cent when the latest performance fee is included. It is trading on a 4.9 per cent premium and is 30 per cent geared.
Personal Assets Trust
This £600m trust is the second largest in the sector and has been managed by Troy Asset Management’s Sebastian Lyon since March 2009. Over that time, it has made a 67.32 per cent return – lagging the 72.19 per cent rise in its FTSE All Share benchmark but beating the 49.37 per cent average return from the Flexible Investment sector.
Performance of trust vs sector and index under Lyon
Source: FE Analytics
Lyon is known for having a very pessimistic view of today’s markets, arguing that the unprecedented monetary stimulus used in the wake of the financial crisis has created distortions that threaten to wreak havoc in the future.
His portfolio consists of ‘four pillars’ – blue-chip equities, index-linked bonds, gold and cash – that the manager favours for their defensive qualities. There is currently 43 per cent of assets in equities, with British American Tobacco, Philip Morris International and Nestlé being the largest holdings, 21.4 per cent in US or UK index-linked bonds, 9.8 per cent in gold and 24.8 per cent in cash.
Chairman Robin Angus said in his most recent update: “Personal Assets is long of cash as I write, because we believe that this will be greatly to our advantage when investment bargains start appearing.”
“Recent times have been frustrating and depressing for investors like ourselves who look for high quality investments at reasonable prices. World financial markets have for years reminded me of an overpriced junk shop in which the same old stock none of it worth buying has been gathering dust for ages, while there’s no prospect of anything new and exciting coming in. But although we are starved of opportunity at present, we are not starved of hope that opportunities will arise.”
Personal Assets Trust has ongoing charges of 0.93 per cent, is trading on a 0.13 per cent discount and is not geared.
Ruffer Investment Company
FE Analytics shows this £328.3m trust is the peer group’s best performer over 10 years with its 109.27 per cent total return. Its average Flexible Investment peer made less than half this – 49.73 per cent – over this time.
Performance of trust vs sector over 10yrs
Source: FE Analytics
However, cautious positioning means that the trust slips into the third quartile over three and five years. Hamish Baillie and Steve Russell, its managers, are also concerned about the effect quantitative easing has had on asset markets.
In their latest annual report, the managers said: “In some ways our views have changed little in the seven years since the global financial crisis; not through dogmatism but because many of the fundamental causes of the financial crisis continue to threaten the world today.”
“There was, and remains, too much debt in the world (or looked at another way, not enough collateral) and the authorities have thus far failed to massage real interest rates low enough to provide any meaningful relief from this burden.”
The portfolio’s largest allocation is to Japanese equities at 20 per cent, followed by non-UK index-linked bonds at 19 per cent, North American equities at 13 per cent and long-dated index-linked bonds at 10 per cent.
Ruffer Investment Company has a 1.18 per cent total expense ratio, is trading on a 2.5 per cent discount and is not geared.