Personal Assets Trust Maintains Its Defensive Stance

It has been a quiet year for the cautiously positioned Personal Assets Trust (LON: PNL), which has just released its annual accounts to the end of April. These reveal a modest NAV total return of 1.2% compared to a rise of 3.4% for the FTSE All-Share benchmark and a 3.3% increase in the RPI index.

The £1.7bn trust aims to protect and increase (in that order) the value of shareholders’ funds per share over the long-term. In order to do this it adopts a multi-asset approach that it tailors to suit the conditions.

Portfolio activity was low during the period with one of the most notable changes being the addition of Heineken to its equity holdings. The manager is enthusiastic about the company’s prospects, noting that around 70% of its revenue comes from fast-growing emerging markets.

Personal Assets is not an investment that will ever ‘shoot the lights out’, but the portfolio’s defensive positioning should provide a solid platform in more challenging conditions. As the manager puts it: “This is a time for patience and prudence, not ebullience.”

Portfolio And Outlook

At the end of May the largest allocation was the 37% weighting in US Treasury Inflation-Protected Securities (TIPS), followed by high quality equities 28%, gold-related investments 12%, short-dated US Treasuries 12%, short-dated gilts seven percent and UK inflation-linked bonds three percent, with the balance in cash.

Manager Sebastian Lyon cautions against the current optimism in equity markets around Artificial Intelligence (AI), noting that the scale of the investment is reminiscent of the level of capital that went into fibre during the dotcom bubble. Whether it ultimately earns an economic return remains to be seen, but he thinks that the benefits are likely to accrue to more sustainable and recurring business models like Microsoft and Alphabet that are held in the portfolio.

Inflation remains stickier than expected, with interest rate cuts still pending. Because of this he continues to hold exposure to inflation-linked bonds, which offer positive real yields, while maintaining a decent allocation to gold to provide ‘essential portfolio insurance’.

“It is becoming clear that we have entered a new era of upward yield pressure and a commensurate rising cost of capital. While western bond markets have performed poorly, this may take time to be reflected in equity valuations, which remain high by historic levels,” says Lyon.

Buybacks And Track Record

Personal Assets Trust has a zero discount policy and has backed this up with significant share buybacks equivalent to 12.6% of the opening share capital during the reporting period. This has been sufficient to keep the shares trading close to the underlying NAV, which sets it apart from the majority of other investment trusts.

It is also good to see that the members of the Board and the investment managers are shareholders in the company and have ‘skin in the game’. Investors can take comfort from this as it means that everyone’s interests are strongly aligned.

Since Lyon took over as manager in March 2009 the NAV total return has been 185.9% (7.1% per annum), which compares with a return of 301.4% (9.5% per annum) for the FTSE All-Share. The broker Numis believes that this is a creditable track record given the fund’s low exposure to equity markets.

They say that the cautious approach and emphasis on capital protection matches the risk/return objectives of many private investors. Because of this, the broker continues to believe that Personal Assets is an attractive long-term vehicle for those with a low risk tolerance.