Investment Trusts Part II
As we approach the quiet time of year in markets, I’ll continue to update you on the investment trusts. I’ll cover the remaining diversified funds this week, and get to the more focused equity, property and alternatives next week. This means that when markets reopen in January, we will have had a refresher and be ready to hit the ground running.
In which direction? I’m not sure, but this year has been too good to be true, and I am well aware that the bear gods could bite us in January. If things go according to plan, our defensive holdings, where our allocation has risen in recent months, will prove resilient. Market corrections are sometimes a shock, but at other times, somewhat predictable. But even if you see a correction coming, the shape of the damage that unfurls is always surprising.
Since the 2022 bond bear market, ByteTree clients have been throwing tomatoes at me for holding the Capital Gearing Trust (CGT) and the Ruffer Investment Company (RICA). You are not alone, as their open-ended funds have seen assets leave in droves.
I have defended them consistently because they are well-managed, with excellent long-term track records that have proven resilient during times of stress. Having resilient assets in a portfolio is invaluable, as it reduces losses when things go wrong, which enables a higher long-term rate of compounding.
I’ll address them separately at first, then individually. But big picture, their investment approaches are similar, at least to the uninitiated, as they invest with risk rather than return at the forefront of their decision-making process. They do not worry about what the stockmarket is doing, nor do they try to beat it.
Yet, over 30 years, CGT has done twice as well as the FTSE 100, including dividends. RICA was launched in 2004 and had kept up with the FTSE until 2023, when both funds started to lag. The reason was a surge in interest rates. Both funds have embraced inflation-linked bonds (TIPS, Linkers, etc.) over the years, an asset class that collapsed in 2022/3. Yet still, they managed to avoid the pain.
The chart shows the capital return for CGT, RICA, and the FTSE, with the UK index-linked gilts’ total return (chart limitations, I’m afraid). It tells the story clearly. Their post-2023 returns have been pedestrian, and that is what has upset investors.
Capital Gearing, Ruffer, Linkers, and FTSE
I’ll go through both in turn.
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