Trusts that offer a port in the storm
Investment trusts that aim to protect your capital could be a good choice now, writes David Prosser.
Investment trusts that aim to protect your capital could be a good choice now, writes David Prosser
Don’t panic. That’s the most important advice any investment professional should be giving you amid the turmoil on global stock markets. With share prices on a rollercoaster ride following President Trump’s “Liberation Day” trade tariff announcements, acting in haste is likely to mean repenting in leisure.
The important thing to remember if you have stock market assets that have fallen sharply in recent weeks is that you have only suffered paper losses. It’s only if you sell out of these positions – perhaps with the aim of moving into less volatile assets – that you’ll crystallise real losses. Stay patient and leave your money invested, on the other hand, and there’s the potential to benefit from any recovery in the weeks and months ahead. It’s never been more crucial to remember that stock market investment is a long-term pursuit.
A slightly different question is how to invest on an ongoing basis in these turbulent times. The short answer is carefully. What many people will want now is a diversified portfolio of assets that give you some protection against the unpredictability and volatility of global markets.
Both BH Macro and Ruffer have managed to generate positive returns during this period of volatility.
David Prosser
Enter the Flexible sector’s investment trusts. These funds could be an ideal way to pick a path through the chaos, providing that all-important diversification away from global trade, delivered by professional managers. As the investment trust analyst team at Deutsche Numis noted this week, many of these funds could provide “safe havens in storm”.
The Flexible sector is an unusual one. These funds invest with a much less constrained mandate than most other investment trusts. Rather than focusing on a particular asset class or stock market, their managers have the freedom to invest across a range of areas. They may well carry some equity exposure, but other holdings may include fixed-income assets, real estate, commodities such as gold, alternative assets and even cash.
It's a sector where you’re placing huge trust in fund managers. They’re making big calls about the likely direction of a potentially wide range of asset classes. Most funds are still investing with an eye on the longer term – these aren’t vehicles trying to second-guess the markets each day – but they’re taking tough decisions about where to place your money, often with a bias towards capital protection rather than trying to achieve ambitious growth goals.
The good news is that the sector is home to some of the most experienced individual managers, with impressive track records. Deutsche Numis’s current favoured funds in this regard include Capital Gearing, Personal Assets and Ruffer Investment Company. It also suggests BH Macro, though this sits in the Hedge Funds sector. RIT Capital Partners is another good option, the analyst suggests.
Investec’s investment trust analysts are also fans of these funds. It currently has buy recommendations on Capital Gearing, Personal Assets, BH Macro and Ruffer. Now could be a good moment to look seriously at that advice. These funds are certainly not immune to market volatility and shares in many flexible investment trusts have slipped to unusually wide discounts to the value of their underlying assets over the past couple of weeks. That could represent an opportunity to get in at a good price.
There are no guarantees. Both BH Macro and Ruffer have managed to generate positive returns during this period of volatility, but that may not last. Other funds in the sector have suffered some setbacks but have incurred less damage than more focused investment trusts. There will inevitably be further ups and downs.
Still, the bottom line is that while flexible investment trusts won’t suit everyone, they do offer the diversified and professionally managed exposures that many investors will be craving right now. They’re certainly worth considering as the storm rages on.
David Prosser
David is former Business Editor of The Independent, Personal Finance Editor of the Daily Express, and Deputy Editor of Money Observer magazine. He writes regularly for the AIC.
