by Faith Glasgow from interactive investor 24th July 2023:
The four venerable multi-asset trusts with a well-deserved reputation for capital preservation have suffered significant losses so far in 2023. Why?
This year has been a terrible one for investment trusts focused on wealth preservation to try and do their job.
In the face of a greatly changed macroeconomic environment driven by high and sticky inflation plus a painful interest rate hiking cycle, the four venerable multi-asset investment trusts with a well-deserved reputation for capital preservation have suffered significant losses and are all now, very unusually, trading on discounts…
What’s happened? After all, these trusts were all constructed and managed with a specific mandate to minimise capital losses, using a highly diversified and flexible spread of assets with low correlation to each other to help mitigate overall losses.
The bottom line is that safe havens of any description have been few and far between over the past 18 months…
RIT Capital differs from the others in that it has substantial private equity exposure. Its shorter-term performance numbers have suffered as some of its private investments have been marked down;. As McHattie explains, “a perceived lack of transparency and more widespread distrust of private equity valuations” have left the RIT shares on their current unusually large discount to net asset value (NAV).
In this instance, says McHattie, shareholders are looking for reassurance that RIT Capital’s portfolio is indeed well-structured to preserve their capital. “The trust has a strong long-term record, but the current volatility in both asset performance and the share price means there are questions to be answered,” he warns.
However, Carthew believes the success of these funds needs to be judged over a long timeframe. “If we look over 10-year or five-year periods, RIT Capital is the best performing. However, it has achieved this by taking on a bit more risk than the other three wealth preservation trusts and, over the past year or so when markets have been weak, it has lagged the others,” he argues.
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