Cash is king, so the expression goes, but investment trusts can also offer shelter from market volatility and falling interest rates, says the Association of Investment Companies.
Annabel Brodie-Smith, communications director of the Association of Investment Companies, said there are several reasons why investors might consider allocating some of their portfolio to investment trusts which aim to preserve capital.
“Perhaps you are saving for a specific event which is fast approaching like settling a mortgage, paying school fees or you’re due to retire soon. For savers who are prepared to take investment risk, these investment trusts can offer a port in a storm and an alternative to cash when interest rates are falling.”
Peter Spiller, manager of Capital Gearing Trust, said that its trust allows investors to participate in some upside from the stock market and bonds but remain protected from steep downturns. Spiller says the trust has only had two downturns in its first 40 years.
“If you had invested £10,000 with us at launch in 1982, you would have £2.2 million today. That is certainly a better return than if you had invested in a savings account.
“We do this by investing our money in three pots: approximately one third in risk assets such as equities, another third in index-linked bonds, and another third is in cash or cash equivalents. We can get higher returns than cash on deposit with our cash investments because we invest in high quality government bonds which pay a better return.”
While the weightings will be adjusted according to the economic environment, it is positioned to make money in almost all circumstances, says Spiller.
Jasmine Yeo, manager of Ruffer Investment Company, echoes the sentiment. Over 30 years, the company has returned 8% a year after all fees and charges, compared to 7.1% for the FTSE All-Share Index.
Yeo said: “The focus of the strategy is capital preservation, and we seek to achieve this in both good markets and bad. Historically, in turbulent markets we have performed well.
“We have an unconstrained approach which means we can invest in any asset in any part of the world, whether equities, bonds, derivatives, commodities or currencies. But when constructing the portfolio, we think about two types of assets, those for protection and those for growth.”
Yeo said protection assets are designed to appreciate when risks occur, while the growth assets are there to capture opportunities and help carry the cost of the protection in the meantime.
Finally, Dan Higgins, investment manager of Majedie Investments, commented:
“We seek to make total returns for shareholders by identifying differentiated fundamental return opportunities, many of which never get onto the radar screens of other investment managers.”
These can be off-the-beaten-path stocks that have been overlooked by the markets, exceptional funds managed by specialist investors, or co-investments and thematic opportunities that come to the firm, Higgins said.
“We think the fund makes a great alternative to cash because, at a time when interest rates look set to come down, it gives investors access to return-seeking investments with a margin of safety that are ‘different’ to the other assets they might already own,” Higgins added.
