UK Edition
In tumultuous times for the financial markets, some investors will be desperate for a safe haven: a home for their money that offers the prospect of growth (and protection from double‑digit inflation) but without the wild, unpredictable swings we have seen recently in some assets.
We will suggest some today from among London’s listed funds.
Although not billed as a “wealth preservation” trust, Finsbury Growth & Income is a solid choice. It tends to invest in businesses that can boast secure revenues, high profit margins and strong growth records.
Examples include Diageo, whose strengths we listed when we tipped it last week, London Stock Exchange, which provides the plumbing and data that financial markets need in order to operate, Relx, whose databases of scientific information are likewise indispensable, and Experian, another provider of vital data, this time on credit scores.
Businesses such as these, whose products are often key to the operations of their customers, which therefore tend not to change supplier readily, can sustain high margins and returns on capital. These attributes lead to strong cash generation and robust dividends.
Even more importantly in the current climate, they tend not to be cyclical; instead, their strong “franchises” allow them to look ahead to years or decades of sound performance and good returns for investors. This gives them a value that transcends the kind of ructions we are experiencing now, when, for example, sudden and severe rises in the yields on government bonds have thrown the case for many investments off balance.
The fact that Finsbury’s businesses are international, despite a London listing for their shares, helps to muffle the effect of those other wild swings we have been seeing of late in the currency markets.
Further stability for the fund derives from the long tenure of its manager, Nick Train, and his determination to “stick to his knitting” and remain true to his investment beliefs in spite of all the changes in the economic and market environment over the past year or so, from the return of inflation and the abandonment of “growth” for “value” stocks to all the uncertainty now over when the current round of interest rate rises will end.
It’s also welcome to see Train’s large personal shareholding of 2.2pc of the trust. As the fund is currently worth £1.7bn, his stake comes to £37.4m. He topped up his holding as recently as Oct 4 when he bought 50,000 shares at an average price of 806p.
Long‑term performance has been very good but the gains have also been achieved with more stability than the market average. Over 10 years the trust’s total return is 163pc, which is beaten among “UK equity income” trusts only by Chelverton UK Dividend. Over five years its annual returns have averaged just over 5pc, compared with just over 2pc for the FTSE 250, yet its volatility has been lower.
Until spring last year the trust had traded at about par value but since then it has been at a discount, currently about 4.7pc. This is a fund that should let you sleep at night. Buy.
For even sounder repose, the explicit “wealth preservation” funds are your best bet. Our favourite has long been the Ruffer Investment Company, first tipped six years ago.
By contrast with Finsbury Growth & Income’s focus on resilient stocks, Ruffer holds a wide variety of assets and is not afraid to change the mix when circumstances change. For example, it opportunistically bought certain index‑linked gilts this month when the price collapsed.
It said the gilt chaos “gave us the opportunity to add to these key assets at extraordinarily distressed prices, before the Bank of England was forced to step in to restore order”. This reassures us that the management team has lost none of its sharpness since the departure of Hamish Baillie in July.
The fund also holds the American equivalent of British “linkers” and derivative instruments that protect against falls in asset prices, as well as gold and cash. But its exposure to the stock market is the lowest it has ever been at 14pc. The fund’s net asset value has risen consistently since launch in 2004 by a cumulative 295pc; its biggest peak‑to‑trough fall has been just 8.6pc.
As alternatives, we continue to rate Capital Gearing and Personal Assets.
Questor says: buy
Tickers: FGT, RICA
Share prices at close: 799p, 300.5p
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