After a disappointing five-year return, the trust needs to prove it can deliver again.
?
Investors who moved into wealth-preservation trusts during the past five years may be disappointed: Personal Assets Trust (LSE: PNL), Capital Gearing (LSE: CGT), and Ruffer (LSE: RICA) have all fallen in value after inflation.
Over the period, UK inflation, measured by the consumer price index (CPI), averaged 5% annually, reaching 27.5% in total. Personal Assets rose 20.8% on a net asset value (NAV) basis through the end of August, equivalent to 3.85% a year. Ruffer returned 20%, or 3.7% annually, while Capital Gearing gained 11.5%, equal to 2.2% per year.
These trusts are sold as a way to protect wealth regardless of market conditions. That sounds attractive, but they were never likely to beat stocks during such a powerful bull market. Even with that caveat, their performance looks poor beside straightforward, low-risk options: the Royal London Short-Term Money Market Fund, for instance, has returned 3.7% a year over the past five years.
Long-standing readers may remember that Personal Assets Trust has occupied a place in the BFIA investment trust portfolio since it began in 2012. Its defensive brief balanced the portfolio's heavier exposure to equities, while Troy Asset Management managers Sebastian Lyon and Charlotte Yonge had built a strong record of limiting losses. Over the past ten years, the trust returned 62.7% on a NAV basis, compared with 41.7% inflation; since Troy assumed management in March 2009, it has returned 247.4%, against inflation of 66.7%. What, then, has held back performance more recently?
Personal Assets Trust has lagged behind the bull market
Personal Assets Trust spreads its money across several asset classes. Stocks currently make up about 40% of the portfolio, with roughly 30% in inflation-linked bonds, 20% in conventional bonds and around 10% in gold. That mix has shifted considerably: in the latest quarterly report, the managers say the stock allocation ranged from the low seventies in 2009 to the low twenties in 2022.
The first problem is the relatively small equity allocation, especially while stocks have been performing so strongly. The trust also leans toward high-quality companies that generate plenty of cash, yet this market has favored other kinds of shares and offered stockpickers little support.
The ten largest technology stocks now make up more than 40% of the US S&P 500, while US equities represent over 70% of the MSCI World index. That concentration explains why big tech generated 53% of the market's return in 2025, according to JPMorgan. Under those conditions, it is nearly impossible for Troy's strategy to keep pace.
Interest rates remain high
The zero-interest-rate period of the 2010s and early 2020s suited Personal Assets Trust. That has changed: cash now offers a tougher return to beat. Bond investors face another setback, too. As expectations for long-term interest rates have climbed, longer-dated bonds have fallen sharply - both conventional bonds and inflation-linked bonds.
Personal Assets Trust owns bonds that mature relatively soon, with an average duration of 2.5 years. Duration measures the weighted average time until investors receive all promised payments, including interest and principal. That leaves the trust much less vulnerable to rising rates than a typical bond fund. The trade-off is limited short-term return potential: its bonds may earn little more than cash, though short-dated inflation-linked bonds should adjust quickly if inflation jumps.
The 2021-2022 inflation surge, followed by rapid rate increases and a disorderly market reaction, makes five-year figures difficult to read at face value. Three-year returns are stronger - 22.7% compared with 8.8% for CPI - but investors, ourselves included, still need to see whether these trusts can once again deliver what they promise in a portfolio.
Leave a comment on: Personal Assets Trust has fallen behind inflation. Can it recover?