Counteracting the corrosive effects of inflation is now, Questor suspects, investors’ top priority.
In last Friday’s column we suggested a five-asset portfolio to this end, as a simpler alternative to the Questor Wealth Preserver portfolio which took shape over the course of last year. But some investors may seek an even simpler, “one-stop shop” solution – and several investment trusts offer just that.
Several of these “wealth preservation” portfolios have been tipped here in the past but today we will summarise their various approaches and what we see as their strengths and weaknesses as they confront the worst outbreak of inflation in four decades.
The first to be tipped was Ruffer Investment Company in October 2016. Since then it has given us a welcome 40pc gain, with a small dividend on top, but more remarkable has been the relative smoothness of the increase. While there have been ups and downs in the share price, they have been nothing like as pronounced as those of the market as a whole.
In particular, the trust’s shares rose even at the onset of the pandemic, when almost everything else fell. They have gone from strength to strength since. The fund had similar success in protecting its holders’ wealth during the financial crisis.
The managers hold a wide range of assets, with special emphasis on those that should protect against inflation such as index-linked bonds issued by the British and US governments. Others include shares, gold and derivatives that protect against market falls.
Similar in many ways is Capital Gearing, first tipped here in November 2017, since when the shares have gained 30pc. Its managers, led by the veteran Peter Spiller, have also long worried about inflation and hold index-linked bonds as well as gold, property and shares, although they avoid derivatives.
The long-term performance of the trust has been exceptional: it has lost money in only one of its 40 years under Spiller’s management and, like Ruffer, has achieved steady growth over decades with far less volatility than the market.
RIT Capital Partners, which manages some of the money of the Rothschild family, is often seen as a wealth preservation fund but it is less determined than Ruffer and Capital Gearing to minimise volatility; its aim instead is to participate in more of the market’s rises than its falls – which of course means that over the long term it should outperform the market and do so with less volatility.
The trust has achieved those aims since its listing in 1988: between then and March it had produced an annual return of 12.4pc, compared with 7.8pc for the stock market. Since our tip in March last year, however, it has gained just 1.7pc, largely thanks to a widening in its discount to the current 10pc.
Different again is BH Macro, which invests in hedge funds managed by Brevan Howard. Its aim is to produce returns that are entirely unrelated to those of the main stock and bond markets via the use of a basket of complex strategies that aim to identify opportunities where the potential rewards are out of proportion to the risks.
From its launch in 2003 to the end of January 2022, Brevan Howard’s Master Fund, in which the trust’s money is invested, returned 8.6pc a year with very low correlation with global stocks and bonds.
We tipped the fund in March 2020 but sold last year in distaste at the management firm’s doubling of its fees. However, for investors whose primary worry is a severe crash – perhaps, as many fear, in shares and bonds simultaneously – this fund is probably best placed to offer protection.
Otherwise, Ruffer and Capital Gearing remain our picks for combatting inflation, thanks to their managers’ long-standing focus on, and preparation for, the very rise in the cost of living that we are now experiencing. Ruffer does trade at a premium of 4.3pc, however, whereas Capital Gearing’s discount control policy keeps its share price close to net asset value; the premium is currently 2.3pc.
RIT remains a good choice for those who want long-term growth but are prepared to stomach volatility; the current discount enhances its appeal.
Questor says: buy
Ticker: RICA, CGT, RCP, BHMG
Share price at close: 314p, £51.30, £23.75, £42.65
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.
Read Questor’s rules of investment before you follow our tips.