ITs and Funds For Capital Preservation

[Dyker]

Good afternoon all.

I am faced with the task of selecting some ITs and/or Funds whose objective is primarily preservation of capital Ideally I would want to invest in about six such ITs or Funds. ITs which seem to be metioned most fequently are Personal Assets, RIT Capital Partners and Ruffer, and I will probably put money into those. However but I would very much welcome comment from anyone who holds any other ITs of funds with the same objective, so that I can give them consideration.

With thanks in advance,
Dyker

[Lootman]

The obvious IT candidate you missed out there is Capital Gearing which, despite its racy name, has been delivering steady, absolute returns for a long time now.

You might also take a look at Seneca Income and Growth IT, which is a multi-asset fund with a conservative outlook.

[Dyker]

Thank you Lootman, much appreciated. I will certainly check out the two additional ITs you mention.
Dyker

[toofast2live]

Beware RIT if preservation is important. It is trading at a 5% premium last time I looked. Best wait until it's trading at par - and if capital preservation is your objective you must be fearful. It does sometimes trade at 1% premium.

Capital Gearing and Persnal Assets both have discount control mechanisms in place so rarely trade above 1% over NAV.

Ruffer appears to me to be so bearish it's almost risky. I would agree Seneca Global Income and Growth is worthwhile as it provides a decent dividend yield which the others do not.

[MartynC27]

I would agree Seneca Global Income and Growth is worthwhile as it provides a decent dividend yield which the others do not.

Seneca Global Income and Growth is currently has a premium of 1.15% according to H-L. There seem to be a lot of people selling Seneca Global Income and Growth according to recent trades. Is this because of the recent talk & predictions of rising interest rates in USA & UK and tapering in USA which would affect all income orientated funds ?

MartynC

[SalvorHardin]

Although it isn't categorised as such, Caledonia Investments to my mind acts in a similar long-term manner to the capital preservation investment trusts. I've owned their shares for over a decade during which time they've been a decent performer (in part because the very large discount narrowed to just being a large discount) and the share price hasn't been especially volatile (at least when compared to most of my other shareholdings).

The main reason for this is that Caledonia is the Cayzer family investment trust (they own 48.5%) and its investment policy specifically focuses on the long-term whilst investing conservatively (there isn't much in the way of high-technology investments in its portfolio). Family-owned businesses generally have a longer-term outlook and Caledonia operates as such. Unlike many investment trusts Caledonia doesn't publish a daily NAV RNS, instead it publishes its NAV only once per month. Caledonia is self-managed.

Caledonia doesn't do share buybacks because the Cayzers are treated as a "concert party" and a buyback could cause the takeover panel to force them to make a bid. They currently trade at a discount of about 18%, though partly this is due to the large private equity content (30% according to the most recent factsheet).

Caledonia has increased its dividend in each of the past fifty years. The shares currently yield 2.0% (some websites may incorrectly quote something like 5.7% because Caledonia paid a one-off special dividend of 100p in August).

http://www.caledonia.com/

[richfool]

I would agree Seneca Global Income and Growth is worthwhile as it provides a decent dividend yield which the others do not.

Seneca Global Income and Growth is currently has a premium of 1.15% according to H-L. There seem to be a lot of people selling Seneca Global Income and Growth according to recent trades. Is this because of the recent talk & predictions of rising interest rates in USA & UK and tapering in USA which would affect all income orientated funds ?

MartynC

Martyn, As I hold SIGT, I had a look at the recent trades. Yes, there were more sales, - I saw 4 sales and 1 purchase, but the sales totalled £10K and the one purchase totalled £25K.

Noted that the prospect of interest rate rises are increasing. SIGT is well diversified, holding only about 9% in fixed interest and 88% in equities. Holdings (also) include UK., Asian Pacific & European equities and some infrastructure.

http://citywire.co.uk/money/investment- ... undID=3095

http://www.hl.co.uk/shares/shares-searc ... st-ord-25p

[Dod1010]

I agree about Caledonia and it is a little more interesting than say Personal Assets. I would also put Finsbury Income & Growth in the capital preservation camp because it does so and usually adds a bit on top.

Dod

[richfool]

I hold Personal Assets, but I don't like the fact that it has some 15% in tobacco stocks.

http://citywire.co.uk/money/investment- ... undID=3152

[Dyker]

Many thanks to all who have so far responded to my original post. The Caledonean Investments and Finsbury Income and Growth nominations from SalvotHardin and Dod will be added to my list of possibilities. I take The point from Toofast2live about RIT's premium, but since RIT would form no more than about 15-20% of the portfolio initially, and I am looking at an investment period of 10 years or more, I may just accept accept the present premium level.
Dyker

[masmon]

Another conservative investment trust is HMSF Highbridge multi strategy Fund - impressive results in 2008 / 2009.

[forlesen]

I feel that some of the suggestions offered in this thread (even though they may well be excellent investments) do not either claim to deliver capital preservation, nor do they achieve it. Instead, their goal is (long term) capital growth. They are typically fully exposed to the market, and will sustain losses similar to the market if that falls heavily. The relatively benign investment environment of the last ~8 years, with generally rising markets, perhaps disguises this.

I strongly recommend that the OP takes a look back 10 years, to the period from September 2007 to (say) September 2012, and take a look at how well the different suggestions would have delivered capital preservation if he had invested at that admittedly inopportune moment:



I took these figures by eye from Trustnet charts, hence I've only given broad brush figures.
All figures based on total return (income reinvested).

For comparison, I've thrown in an international investment trust, and two indices. It's clear that purely in terms of capital preservation, with some of the suggestions given, you'd have done just as well if not better simply investing in a broad market tracker.

I considered adding a further column indicating how long the different trusts took to get back to the initial investment value, but several of them crossed and re-crossed the 100% line repeatedly. The main takeaway from that was that Caledonia in particular took a long time (> 6 years) to get there.

In summary, capital preservation and capital growth are different goals, with typically very different timescales. The OP does not really make it clear what timeframe he is looking at, but if it's a relatively short one (e.g. investing on behalf of teenaged children), then investments with a long-term strategy, however good they are, may not be well suited. Most ITs have "About Us" pages on their websites, where they should make their objectives and strategies clear.

[SalvorHardin]

Good points raised by forlesen. I'm on my mobile so I can't format and I'll keep this short as I'm in the pub.

The thing with Ruffer in 2007-08 is that it had a lot in gilts which did very well over the next few years. Not just because interest rates were slashed; a lot of investors became seriously concerned about the return of capital, rather than return on capital, which is why some governments could sell negative interest rate bonds.

I'd argue that we have had a bigger bull market in bonds than equities since then. And that it is unlikely that Ruffer will benefit as much during or after the next crash - I can't see bonds repeating their performance.

Caledonia did badly thanks to the double whammy in 2008 of equity falls and a rapidly widening discount (I dimly remember it getting close to 40%). The narrowing discount is a major reason why Caledonia's performance has been so good in recent years.

I'm in the camp that doesn't consider equities to be seriously overvalued, at least not at today's gilt yields. The reverse yield gap, where equities had generally yielded less than gilts since 1959, has in recent years reverted to the pre-1959 situation when equities yielded more than gilts.

Though there is a distinct feel of something like the dotcom bubble where almost any old nonsense with a "tech" label was hyped through the roof. That crash was pretty good for the more boring low-tech companies that people like me held at the time. A good indicator is the fuss around "initial coin offerings" - these remind me of the South Sea bubble.

[Dyker]

Forlesen wonders what my timeframe for capital preservation is. At least 15 years was what I had in mind when I posted originally.

For what it is worth, after reviewing the suggestions made, I invested 40% my capital in Personal Assets and Seneca Income and Growth, equal amounts in each. I intend to place another 20% with Capital Gearing later in October, I am undecided at this point where the last 40% will go, but Forlesen's 10 year review table obviously makes a strong case for some being allocated to Ruffer.

Again, thanks to everyone for their comments and suggestions.
Dyker

[peka]

Another investment trust with an absolute return objective is Miton Global Opportunities:

https://whichinvestmenttrust.com/does-n ... investors/

https://www2.trustnet.com/Factsheets/Fa ... F75&univ=T

It's done very well relative to other capital preserevation ITs over the last two years, but that's partly because its discount to NAV has narrowed.

[GJHarney]

I do like Miton Global Ops IT though for diversification, and while I know it has high charges (currently quoted at 1.4%), as a fund of other IT's it has taken the place of London & St Lawrence for me after that was wound up, and while it has a different approach to its IT holdings than L&SL did I am so far equally happy with it and as something to hold and forget.
.

[Lootman]

I do like Miton Global Ops IT though for diversification, and while I know it has high charges (currently quoted at 1.4%), as a fund of other IT's . . .

I don't know if I want to pay 1.4% a year to pay someone else to pick ITs - something I like to think I can do myself.

There is an argument to pay for managing an IT where I want exposure but do not have much personal knowledge, like venture capital, biotech, emerging markets etc. But to pick other ITs that I am already familiar with, seems excessive. Indeed, how do they justify that cost?

The one exception I might make is if IT discounts are high. So if ITs are on a 10% discount and your "Fund of fund" is also at a 10% discount, then you can get a double dip on that. But of course they could both all go to 15% discounts . . .

[GJHarney]

I think the justification with Miton is the type of IT's it actually picks, ones that are often not easily available to retail investors, and certainly most of its holdings are ones In don't own elsewhere, nor could easily own. The current strategy is to pick up small 'orphan' IT's that the large investment groups can no longer invest in, or haven't the time to research, and that are normally on a large discount to NAV. Even if that discount doesn't narrow there is always the possibility of making a profit if the IT gets wound up. Then there are specialist funds like Talesin (Berlin property), which I did buy myself a few years ago and it has had spectacular performance since. There is a good article/interview in this weeks Moneyweek on Miton by Somerset-Webb, and although she is always the first to comment when fees are too high, in this case it is a recommended buy for some interesting diversification. An added bonus for me was that it is part of the Frostrow group and so is in some very good company.

[Dod101]

I know nothing about Miton Global Opportunities IT but having looked at its website and Annual Report I would not commit funds to it although for a small portion of fun money (by which I mean that I can afford just to leave and it does not matter if it does nothing) it might be worth a whirl. It looks to me just about the opposite of traditional wealth preservers such as have been mentioned. It is quite small, with high charges and a performance fee which I dislike on principle and has done very little with NAV until this last year when it has taken off spectacularly. It bears no resemblance to London & St Lawrence. Furthermore it has no dividend. Not exactly what I might be looking for.

I have heard of very few of the trusts it is invested in (which might of course be a good thing in that it brings diversity or maybe diworsity)

Capital preservation usually requires the sort of assets that Ruffer and Personal Assets have, not frontier stuff that Miton has. It is surprising to me that it should be mentioned as a wealth preserver.

Dod

[toofast2live]

Tetragon was mentioned in the DT today. For various historical reasons it sits on a 35% discount and has a yield of over 5%. A different mix of assets to the other capital preservers.