A fund called the Personal Assets Trust is used to safeguard your wealth

The goal of the Personal Assets Trust is to protect the assets of its shareholders from erratic markets

A five-year investment return of 25 percent seems pitiful when compared to the MSCI All Country World index's 71 percent return. Therefore, why does Personal Assets Trust (LSE: PNL) have 11.6 billion in assets and trade at a negligible discount to net asset value (NAV)? The reason is that PNL, like Capital Gearing (LSE: CGT) and Ruffer Investment Company (LSE: RICA), targets people who want to stay rich rather than those who want to become wealthy through investing.

The trust's motto is "Our policy is to protect and increase (in that order) the value of shareholders funds per share over the long term." Over the last five years, risk-averse investors could have done much worse: the average return on investment in ostensibly safe gilts has been -22 percent.

Government bond holdings have long been the go-to strategy for balancing a portfolio's performance. The traditional ratio has been 40% bonds to 60% stocks. When the stock and bond markets are inversely correlatedthat is, when stocks are performing poorly, bonds typically perform wellthis works well.

However, this isn't functioning well anymore. In 2022, the inverse relationship that had existed for more than 30 years reversed. An old-fashioned passive 60/40 portfolio would have returned a relatively low 34 percent while becoming more and more volatile.

For a much smaller return sacrifice, holding a fund like PNL instead of gilts would have substantially improved performance smoothing: a mix of 60% stocks and 40% PNL would have yielded 53%. For this reason, it is a part of the portfolio of the BFIA model.

The portfolio of the Personal Assets Trust is cautious.

PNL has a cautious stance. The Troy Asset Management team, led by Sebastian Lyon and Charlotte Yonge, has only 38% of the portfolio in stocks, primarily blue chips.

The top five stocks (out of 17 holdings) are Microsoft, Alphabet, Visa, Diageo, and Unilever (4.5 percent of the total portfolio).

Government bonds currently account for 48% of the portfolio. US inflation-linked bonds make up 24% of this, followed by Japanese government bonds (8%), short-dated gilts (9%), UK inflation-linked bonds (4%), and short-dated US Treasuries (3%). The emphasis on short-dated and inflation-linked bonds implies that Lyon and Yonge do not think the bond yield increase is over.

Though Lyon and Yonge are not paid-up members of the end-of-the-world-is-nigh crowd, gold bullion currently holds the largest position at 10 percent. They also note that "the strong recovery in equity markets is a reminder of why transposing geopolitical predictions onto financial markets is challenging" and that they have realized "material gains" on their gold holdings over the past nine months.

Trust for Personal Assets: discount control.

Naturally, investors may find that consistent returns from such a strategy become more volatile if the discount to NAV of an investment trust varies. When equity markets were doing well and PNL was trailing badly, it might be expected that the discount would widen; however, when it was at least protecting value in challenging markets, it would narrow.

PNL's strict discount control mechanism, which involves issuing shares when there is excess demand and buying them back when there is excess supply, helps to avoid this. As a result, the shares continue to trade near net asset value. The trust repurchased 26 million shares in the year ending April 30th, which accounted for 6.2 percent of the shares issued at the beginning of the year, while issuing only 0.6 million shares.

Since Troy was appointed in 2009, PNL has seen a return of 204% in share price terms, more than doubling the retail price index's 90% appreciation. Since investors have benefited from taking on greater risk over the last five years, its returns have trailed the market. However, PNL's time will come againpossibly not just yet, but probably in the next five years.