Capital Gearing Trust, Personal Assets, Ruffer and RIT Capital Partners all describe themselves as “wealth protection” trusts. Personal Assets goes a step further, claiming that “Our policy is to protect and increase (in that order) the value of shareholders’ funds per share over the long term”.
For the best part of the past two decades, these funds have done just that, but in the past five years, they have started to struggle. Take Personal Assets . Over the last five years, the trust has produced a net asset value (NAV) return of 26.7%, compared with 33.4% for the UK Retail Price Index .
Capital Gearing has returned 4% per annum on a NAV basis, compared with 4.4% for UK prices. Ruffer has returned 6%, thanks to a well-timed bet on bitcoin. During the past three years, it has returned 1.7% per annum on a NAV basis.
RIT has chalked up by far the worst performance. In the past three years, its NAV return is 0%, and over the past five years, the return has only just kept pace with inflation. However, as its discount to NAV has increased significantly (as I explore below), the stock has gone nowhere over the last five years. In the past three, it has lost 23%.
So, in the best-case scenario, these funds haven’t kept pace with inflation and in the worst case, they’ve lost money. In the case of Personal Assets and Capital Gearing, the fund managers have been too defensive.
Large allocations to bonds, specifically index-linked bonds , have held back returns at a time when equity markets have surpassed expectations. Inflation-linked bonds have also underperformed. Despite their name, they still trade like bonds, and long-duration inflation-linked bonds have lost value in just the same way as their fixed coupon counterparts.
Ruffer and RIT have had different problems. Ruffer’s market-crash protection has been poorly timed. The fund has been prepared for trouble, using costly derivatives and a large bet on the appreciation of the yen , but the currency has continued to weaken, and the market hasn’t crashed. The cost of maintaining these positions has eaten into returns. At the same time, its low allocation to equities means it hasn’t been able to benefit from much of the wider market rally .
RIT’s problems, meanwhile, have been twofold. A little over a third of its portfolio has been deployed into private equity, which has been a drag on returns. In 2023, the private equity segment lost 2.7%. What’s more, uncertainty surrounding private-equity values has led to investors placing an “uncertainty discount” on the trust, with its discount to NAV currently at 25%.
The other problem is fees. Its exposure to private equity funds and so-called “uncorrelated strategy” funds is expensive. In RIT’s annual report it says fees for these funds constitute “typically a 1%-2% management fee and typically a 10%-20% performance fee”; meanwhile, fees for investments into private funds “will usually have a 1%-2.5% annual charge as well as a 20%-30% carried interest”.
Altogether, the Association of Investment Companies calculates RIT’s ongoing annual charge is 1.59% without performance fees. You’d need outstanding outperformance to justify that fee, and that’s not something RIT’s managers can claim to have achieved.
Can these trusts rebuild their reputation? That’s the question investors need to ask after their recent performance. In a world with a risk-free interest rate of over 5%, they can’t point to a sub-4% annual return and expect investors to keep paying annual management fees.
A low-cost bond fund would produce the same return with less risk. All would argue it’s their active management that’s worth paying for: the ability to pivot when the market shifts and take advantage of market dislocations to protect and grow capital.
However, there is plenty of research that shows the bulk of active managers underperform over the long term. The trusts’ performance over the past five years supports that argument.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription .
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