THE MONKS INVESTMENT TRUST PLC
/ CAPITAL PRESERVATION /
metrics over the past decade,
including maximum drawdown,
downside capture and volatility.
This has come at the expense of
significant underperformance in
terms of total return.
Among the most successful
names in this sector for preserving
capital are Personal Assets Trust
and Ruffer Investment Company.
Both of these use discount control
mechanisms, which sees them buy
back shares if the discount falls to
a certain level, containing losses.
The disadvantage here is these can
also limit upside potential for new
investors hoping to buy in on the
cheap and have led some critics
to point out you may as well just
hold an open-ended fund.
CUTTING THE BONDS
One anomaly of the closed-ended
universe – and perhaps another
reason why investors tend to
overlook it for capital preservation
– is the lack of vehicles focused on
fixed income.
Peter Spiller, manager of the
Capital Gearing Trust, says
investment companies held
plenty of bonds in the 19th
century. In the 20th century,
however, exchange controls
(restrictions on the movement
of currency between countries),
high inflation and high rates of
tax meant “equities were the only
game in town”.
“This flexibility perhaps
suggests that active management
worked effectively. It was
also good news for investors
16
“Capital
preservation
is enhanced in
an investment
trust, but
volatility is
ironically
greater”
because in the 20th century
equities produced fabulous
returns, around 6 per cent above
inflation,” he says.
However, he warns conditions
now are “far less propitious than
then” adding that both equities
and bonds are now at the opposite
end of the value scale.
“Capital preservation looks
more important until the prices
of financial assets that have been
inflated by QE return to more
‘normal’ levels,” he explains.
Spiller knows plenty about
capital preservation, with his
trust losing money in just one of
the past 10 calendar years. His
preferred asset for this strategy
has long been index-linked
government bonds, currently
making up 38 per cent of his
portfolio, although he has sold
down the UK variety in favour of
US TIPS over the past 12 months.
MONKS HAS OVER £1.6BN
IN NET ASSETS UNDER
MANAGEMENT, WHILE ITS
ONGOING CHARGE IS A
MODEST 0.59%*.
LOOKING FORWARD
Investment companies are always
likely to be more volatile than
funds in the short term. The issue
with the latter is that with bonds
looking expensive, managers
focused on capital preservation
are being forced to look at
alternative assets – which often
expose the shortcomings of the
open-ended structure in times of
market stress.
Whatever else you can say
about investment trusts is that,
with the first one celebrating its
150th birthday this year, they
have proved more than capable of
withstanding anything the market
has had to throw at them.
THE CENTRE OF
YOUR PORTFOLIO.
Monks Investment Trust, we believe, could be a core investment for anyone
seeking long term growth. It is managed according to Baillie Gifford’s £33bn Global
Alpha strategy. As a result, Monks takes a highly active approach to investment
and its portfolio looks nothing like the index. The managers group their holdings into
four different growth categories – stalwart, rapid, cyclical and latent. This allows for
excellent diversification and offers the chance to unearth some of the more interesting
companies listed on global stock markets.
Please remember that changing stock market conditions and currency exchange rates
will affect the value of the investment in the fund and any income from it. Investors
may not get back the amount invested. If in doubt, please seek financial advice.
PERFORMANCE OF SECTORS (%)
Name 1yr 3yrs 5yrs 10yrs IA Flexible Investment 2.36 16.64 36.15 71.15 If you’re looking for a fund to shine at the centre of your portfolio,
call 0800 917 2112 or visit www.monksinvestmenttrust.co.uk
IT Flexible Investment 4.19 25.85 34.23 43.4 A Key Information Document is available by contacting us.
Long-term investment partners
Source: FE Analytics
trustnet.com
*Ongoing charges as at 30.04.17. All other data as at 31.12.17. Your call may be recorded for training or monitoring purposes. Monks Investment Trust PLC is available
through the Baillie Gifford Investment Trust Share Plan and the Investment Trust ISA, which are managed by Baillie Gifford Savings Management Limited (BGSM). BGSM
is an affiliate of Baillie Gifford & Co Limited, which is the manager and secretary of Monks Investment Trust PLC.