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Three investment trusts for volatile times

Daniel Lane

Daniel Lane - Fidelity Personal Investing

With their ability to plan for the super long term, a lot of trusts will focus purely on selecting the right equities for the portfolio. However, there are trusts out there mixing a range of assets with a view to navigating the choppiest of markets and reducing volatility over the long haul.

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Here are three of the most popular mixed asset investment trusts on fidelity.co.uk this month:

RIT Capital Partners

Few trusts can draw upon a history of capital preservation comparable to that behind RIT Capital Partners.

Listed in 1988 by Lord Rothschild who remains chair, the trust employs a multi-asset approach to investing for the long-term, paying close attention to the founder’s original aims. Chief operating officer Jonathan Kestenbaum explains: “Since the trust began we have been alert to the fact that capital growth is only one element to our objectives, the other being a vigilant approach to capital preservation, which is a hallmark of the Rothschild history.”

With no constraints around asset allocation in the trust, management is free to invest where it sees the best opportunities. Typically, the trust will hold a blend of quoted and unquoted equities, internal and external funds, bonds, currencies and cash to provide investors with a truly diversified portfolio.

Striving for equity-type returns with less volatility, Kestenbaum says: “With no specific restrictions it makes it easier to manage risk by spreading assets as we see fit. We invest in three categories, namely public shares, private equity and funds. This type of strategy ensures that at any one time at least one of these cylinders is firing.”

While aiming to invest in a widely diversified international portfolio, management is conscious of over-diversification and seeks to control this by identifying quality opportunities and backing their ideas. Kestenbaum says: “We like to hold meaningfully-sized positions because if you’re not careful you’re left with a long tail of tiny positions. Our aim is to invest in such size as to make the positions meaningful for the portfolio.”

Murray International

“Short-termism is the scourge of the investment industry,” says Bruce Stout, manager of the Murray International Trust. In the mature stage of an equity bull market, the manager says that companies are missing the big picture by trying to grow constantly over the short term.

The growing pressure to hit rising quarterly targets is stopping companies investing in themselves for the future, says the manager. He explains: “After a period of strong growth you need to settle down and make sure everything is working well before you begin to grow again.”

In an environment of intense focus on growth the manager is keen to emphasise the importance of not overpaying for the prospect. Stout’s aim is to find companies that will prosper over the long term while staying mindful of paying the right price. He says: “We always have to be conscious that we’re not paying too much for a company. But of course being Scottish, that’s a great advantage.”

Rather than grouping countries and companies together, diversification is key for the manager’s global outlook. He points to the dangers of focusing on one area of the market and underlines the need for the type of long-term view employed in the Murray International Trust.

He explains: “The market likes concentration as we’ve seen with the obsession with the US and massive interest in the likes of the biotech sector. But we’ve seen concentration problems like the tech boom – these things pass and the novelties wear off. We aim to hold our companies for at least ten years and take each business on its own merits – we understand what’s happening in the countries but fundamentally we look at the companies.”

The trust currently has around 80% of the portfolio in equities, with 16% in fixed income, as the manager looks to deliver benchmark-beating returns with lower volatility than its peers.

Personal Assets Trust

The most balanced of the three, the Personal Assets Trust is run specifically for private investors with a policy of protecting capital first. Growth plays second fiddle here as the fund takes a long-term view, looking to attract cautious investors concerned primarily with preservation rather than achieving high returns.

As such, the trust has a level balance between equities and bonds, currently holding 46% of the portfolio in company shares and 44% in fixed income. Manager Sebastian Lyon looks for high quality companies with pricing power and defensive characteristics in sectors like healthcare and consumer goods, avoiding cyclical stocks and firms with intense capital needs. Examples here include portfolio holdings Microsoft, Nestlé and Coca-Cola. In terms of fixed income, Lyon reduces the risk of the fund by holding a range of government bonds, most notably from the US and UK.

Cash takes up around 10% of the fund, serving as a diversifier and a source of readily available funds, should the opportunity arise to capitalise upon a new investment idea without cannibalising existing holdings.

More on RIT Capital Partners

More on Murray International

More on Personal Assets Trust

Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

 

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