Which capital preservation funds delivered in the market falls?

In very rocky markets capital preservation funds will aim to reduce investors’ losses and while they don’t guarantee to keep your money growing, you’d expect them to lose less than the market. During the recent market turmoil most funds and trusts have managed to achieve this goal, although there’s a wide spread in returns. Investors who fear further market falls ahead or are worried about a looming recession may be opting to switch some of their money into these funds, but they should look underneath the bonnet to see how they invest and how they aim to reduce market losses.

Four investment trusts are run with the aim of preserving capital: Personal Assets Trust, Ruffer Investment Company, RIT Capital Partners and Capital Gearing. The worst of the market falls happened in March, but during that time two trusts delivered a positive return: Personal Assets Trust and Ruffer.

Both these trusts have the ability to have a chunk of the portfolio in defensive assets, such as cash and gold. Going into March, Personal Assets had about a 20% of the portfolio in cash, another third in index-linked bonds and 9% in gold, which helped to shore it up against falling equity markets. Likewise Ruffer had 50% of its assets in bonds, cash and gold at the end of February.

However, during March all four trusts saw their share prices fall to a discount, with RIT hitting -30% at one point, while Ruffer fell to more than -10%. This is great for new buyers who wanted to get into the trust but painful for existing investors if they needed to sell out.

The full table, which includes funds run to a capital preservation strategy, show how important it is for investors to dig into how fund managers will perform in a crisis, as over the past month there is a more than 11 percentage point difference between the best and worst performing funds of the group, and over three months this rises to more than 12 percentage points.

While all of these funds aim to preserve capital, they have very different investment remits, with some focusing entirely on bonds rather than equities. For example, the TwentyFour Monument Bond fund invests in corporate bonds and aims to get a decent level of income above current interest rates, while preserving capital. The fixed income specialist’s 6% loss over the past three months stands up against the declines suffered by the FTSE All Share. However, its focus on bonds meant the fund lagged the raging equities bull market over most of the past decade.

Source: FE/AJ Bell. Data accurate to 31/03/20. Based on trusts with a capital preservation strategy and funds marked as ‘capital preservation’ in FE.