Investment trust picker Peter Hewitt has relied on a trio of ‘portfolio protectors’ to stymie the losses in his CT Global Managed Portfolios caused by the sell-off in technology stocks.

Hewitt runs both the £97m CT Global Managed Portfolio Growth (CMPG ) and £64m CT Global Managed Portfolio Income (CMPI ) trusts, which both invest in other investment trusts and have been renamed following BMO’s takeover by Columbia Threadneedle.

Unsurprisingly, the growth portfolio suffered in a year that saw a sharp rotation out of growth stocks as inflation and interest rates moved rapidly higher. In the 12 months to the end of May the net asset value (NAV) total return of the growth portfolio was -11.4%, falling far short of the 8.3% gain made by the FTSE All Share. The income portfolio also underperformed the benchmark but by far less, clocking up a decline of 1.5%.

As discussed in his recent appearance on our Funds Fanatic podcast, Hewitt said the steep fall suffered this year led him to reduce his exposure to technology and biotech trusts following a ‘widespread derating caused by inflation and interest rates’. He slashed the size of the holdings by between a third and a half in trusts such as Scottish Mortgage (SMT ), Allianz Technology (ATT ), Polar Capital Technology (PCT ), and Edinburgh Worldwide (EWI ).

However, the losses in the growth portfolio would have been far worse without the help of trusts Hewitt groups under ‘portfolio protectors’.

‘The common theme is either no or low exposure to equities with the result that they offset other holdings in the portfolio which are affected by adverse market conditions,’ he said, adding that all three had been part of the fund ‘for many years’.

The best performing ‘portfolio protector’ was £1.3bn hedge fund BH Macro (BHMG ), which saw its share grow by a quarter over the year thanks to its ability to ‘exploit opportunities in interest rates, bonds, and foreign currencies’.

‘The many trades its managers undertake at any one time are tightly managed in terms of risk,’ said Hewitt.

‘When volatility is low, returns tend to be muted, however, when volatility rises, as has been the case over the past year, returns can be substantial. The growth portfolio has held shares since launch in 2008 and they have proved a useful offset when equity markets experience volatility.’

The £1bn plus multi-asset Ruffer (RICA ) and Capital Gearing (CGT ) global trusts both offered Hewitt protection over a torrid year for equity markets, with their shares rising 10% and 7%, respectively.

‘Both have low exposure to equities at 36% and 45%, respectively,’ he said.

‘Ruffer’s largest holdings are BP (BP) and Shell (SHEL), while Capital Gearing has 16% in property equities and 8% in infrastructure, which it believes are good hedges against inflation. Both investment companies have substantial exposure to index-linked bonds which do well when inflation is a threat to many other asset classes.’

Hewitt’s holding in JPMorgan American (JAM ) also benefited from a 17% share price gain. Like CT Global, the trust is split into two portfolios, one growth and one value.

‘The mix between the two different styles of management led to the growth element of the portfolio performing well in the first half while the value element more than offset the sell-off experienced by many US growth companies in the second half of the past year,’ said Hewitt.

Private equity trust HgCapital (HGT ) also helped cap losses, as the shares rose 17% over the year, after building what Hewitt described as ‘an exceptional record of long-term growth in asset value through a focus on business-critical software companies, much of whose revenue is subscription based’.

‘Core areas of focus are payroll, accounting, tax, legal and regulatory compliance,’ he said. ‘These sectors offer considerable growth with pricing power and predictable earnings in an inflationary environment.’

Hewitt has shaken up his trust this year to avoid further steep losses in high-growth areas as he warned of raised chances of a recession ‘at some point in late 2022 or 2023’, however, he said investors must continue to look long term.

‘It is for this reason that, while the growth portfolio has pared back its previous significant exposure in investment companies with substantial underlying holdings in companies with secular growth characteristics, it is not the intention to exit these holdings entirely,’ he said.

‘At some stage, though not in the immediate future, it is likely they will be rebuilt in size.’

Until then, he said ‘caution in the watchword’ and the focus for now is ‘holding only the highest quality investment companies with strong balance sheets and experienced, proven management’.