Hidden Treasure Account: a financial tool designed for wealth preservation
In the world of investments, the Personal Assets Trust (LSE: PNL) stands out for its cautious approach, aimed at preserving and growing wealth over the long term. With £1.6 billion of assets under management, the trust's portfolio is conservatively weighted, with only about 38% in equities—mostly blue-chip stocks—and a large proportion (48%) invested in government bonds and inflation-linked bonds. A significant allocation to gold bullion completes the portfolio, making it less volatile and appealing to investors focused on wealth preservation rather than outperformance relative to the MSCI All Country World index.
The portfolio managers, Sebastian Lyon and Charlotte Yonge, favour short-dated and inflation-linked bonds due to their caution regarding further rises in bond yields. The sizeable allocation to gold provides a hedge, although they have recently taken gains from gold exposure, reflecting a balanced and flexible approach rather than a defensive panic stance. This strategy leads to lower returns compared to a global equity index but also tends to reduce large losses and smooth returns over time, making Personal Assets Trust an attractive choice as a steady, lower-risk foundation for an investment portfolio.
The trust's strapline, "to protect and increase (in that order) the value of shareholders' funds per share over the long term," reflects this focus. The negligible discount to net asset value likely reflects investor recognition and demand for this cautious, wealth-preserving approach. Investors value the fund’s ability to limit downside risk and provide steady growth, contributing to a market price that closely tracks the trust's net asset value despite the lower return profile compared to more equity-heavy benchmarks.
Over the past five years, the average return from investing in supposedly safe gilts has been -22%. In contrast, the trust's portfolio has returned 204% in share-price terms since Troy's appointment in 2009, more than double the 90% increase in the retail price index. Diageo is one of the top five stocks in Personal Assets Trust's portfolio, representing 4.5% of the total.
The trust's discount control mechanism involves buying back shares when there is excess supply and issuing them when there is excess demand, keeping the shares trading close to net asset value. In the year to 30 April, Personal Assets Trust bought back 26 million shares (6.2% of those in issue at the start of the year) and issued just 0.6 million.
The inverse correlation between stock and bond markets, which lasted for over 30 years, flipped in 2022. This shift could potentially impact the performance of the Personal Assets Trust portfolio in the future. However, the trust's managers remain focused on their long-term strategy, and despite lagging the market over the past five years, they believe that their time will come again, likely within the next five years.
For those interested in learning more about Personal Assets Trust and the world of investments, the trust offers a subscription to its magazine for exclusive access to news, opinion, and analysis from a team of financial experts.
- The Personal Assets Trust's portfolio, with its significant allocation to gold, short-dated and inflation-linked bonds, and a cautious approach, is popular among investors focused on wealth preservation and reduces large losses, making it an attractive choice as a steady, lower-risk foundation for an investment portfolio.
- The trust's portfolio managers, Sebastian Lyon and Charlotte Yonge, have favored investing in gold as a hedge, and they have recently taken gains from gold exposure, reflecting a balanced and flexible approach rather than a defensive panic stance.
- The Personal Assets Trust's long-term strategy, aimed at preserving and growing wealth over the long term, has resulted in a portfolio return of 204% in share-price terms since Troy's appointment in 2009, more than double the 90% increase in the retail price index.
