Welcome to my new blog. I’ve been writing the Financial Times’ Adventurous Investor column for over 7 years now, as well as weekly columns for Investment week and Money Week here in the UK. At long last I’ve decided to properly embrace the blogging revolution and launch a regular Adventurous Investor blog, which I will aim to update every few days.
Topics? Adventurous stuff about the financial markets: frontier markets, ETFs, macro stuff and investment trusts. Mostly for a UK investor community.
Today I thought I’d kick off with a popular investment trust, beloved of defensive investors — The Personal Assets Trust managed by Troy AM and Sebastian Lyon. Only a few days ago it announced Full year results which showed that NAV rose 10.2% on a total return basis (8.6% excluding dividends) versus growth of 20.1% in the FTSE All Share (total return).
According to a Numis note on these numbers, the portfolio hasn’t really changed that much : “ The fund has substantial exposure to US Treasury Inflation Protected Securities (TIPS), UK gilts and gold. Equity exposure is focused on UK and US blue-chip companies with pricing power in defensive industries, and portfolio turnover is extremely low “amid the dearth of attractive opportunities”. During the year, Troy AM, added to American Express, Berkshire Hathaway and AG Barr (the latter on weakness), while a new holding was initiated in Franco-Nevada, a precious metals royalty company. A modest reduction was made in the fund’s holding in BAT after a strong run.”
So far, so good. I don’t own Personal Assets but I think for the right investor it does make sense i.e the more worried ones who think inflation might take off whilst the economic system wobbles.
But this very distinctive strategy also introduces a problem for a fund like Personal Assets. How do you compare performance with a benchmark? Superficially, you look at something like the FTSE but frankly, it’s a useless exercise when the portfolio is jam packed full of TIPs, gold and foreign stocks.
Step forward a more easy to understand ‘benchmark’ like inflation. Frankly if a fund can carry on beating inflation over the long term by 3 to 6% per annum, job done.
According to the fund’s chairman “since 30 April 1990, the NAV has risen at an annual compound rate of 7.5% compared to 5.1% for the FTSE All-Share Index and 2.9% for the RPI”.
As I said, the fund is a good long term investment idea, providing protection against inflation.
But arguably Personal Assets have got carried away with this idea of innovative bench-marking. Numis reports that apparently the Board is “giving thought to how best to measure how we have performed in pursuit of our stated objective and then communicate the results” and is considering dropping total return as a “key performance indicator” in future and de-emphasising the FTSE All Share, instead focusing on the RPI as a measure of how we are succeeding in protecting the real value of shareholders’ funds”.
Crikey. I’m all in favour of radical simplification and doing away with the jargon of investing but I rather sense this might be a step too far. Active fund managers love to declare loudly that they are conventional benchmark agnostic and as a way of intellectualising fund management that makes sense. But investors ALSO need radical transparency i.e they need to see through the spin and narratives offered by the investment management industry and understand the actual returns and actual costs compared to widely used benchmarks. In sum beware the active fund manager who attempts to ignore widely used benchmarks. Say it, criticize the index, and don;t make a fuss about…fine, but don’t actually do it.i.e ignore it and pretend it doesn’t exist.
You can find out more about the fund at https://www.patplc.co.uk/