Personal Assets 22 August 2023
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
Personal Assets Trust (PNL) offers investors an unconstrained, multi-asset investment solution focussed on the preservation of its shareholders’ capital whilst aiming to increase its value over the long term – in that order. As we discuss in Portfolio, PNL’s longstanding manager Sebastian Lyon, who is also the CIO and founder of Troy Asset Management, takes an absolute return mindset that is free from the constraints of any benchmark. Although unconstrained, the strategy typically uses a relatively narrow and uncomplicated range of assets including listed equities, bonds, gold, and currency, unlike some other strategies found within the flexible investment trust sector. However, the allocation to each asset class can vary considerably, particularly with respect to equities which at its current level is 24% of the portfolio. This reflects Sebastian’s cautious attitudes to risk and the limited availability of high-quality, attractively-valued, and fundamentally sustainable investment opportunities currently in the market.
As we discuss in Performance, Sebastian’s focus on capital preservation leads to a cautious approach to asset allocation. Combined with the flexibility of the strategy, this has resulted in one of the most consistently strong long-term risk-adjusted performance characteristics in the AIC investment trust universe. The trust has shown a valuable protective capacity during the periods of market turbulence we have seen over the past five years, with the significant allocation to defensive assets such as inflation-linked bonds, US and UK short-dated government bonds, gold, and cash.
PNL’s discount control mechanism is designed to minimise discount volatility to maintain shareholder value and liquidity by keeping shares trading close to NAV over the long term. At the time of writing, PNL is trading at a discount of 1% (see Discount).
We believe PNL has been able to demonstrate its credentials as an all-weather, capital-preservation strategy, particularly effective at shielding investors from extreme financial market turbulence through Sebastian’s cautious, yet diversified and flexible approach using a range of asset classes. Although this strategy can sometimes lag stylistically-driven equity markets, the risk-adjusted returns profile of the trust is very attractive. In our view, the strategy may appear even more valuable given the stickiness of inflation, tight monetary policy, and the relatively narrow cohort of performing equities this year to date. In our view, Sebastian’s current defensive positioning and high allocation to liquid assets leave him potentially able to invest in equities at lower prices in the future, if his negative outlook for the near future is correct.
The trust has an active discount control mechanism (DCM) in place and its long-term average premium sits around 1%. %. The DCM adds another layer of security for investors wary of discount and the small discount it currently trades on (1.1%) may add a little extra appeal for investors at this point. In turn, the very low charges and strict DCM should mean that shareholders can redeem at a value very close to par, despite volatility in the financial markets and wide discounts across alternative strategies.
- Capital preservation and downside protection strategy proves useful during uncertain market environments
- Strict discount control mechanism ensures shareholder value, provides greater liquidity and reduced discount volatility
- Multi-asset approach offers a more diversified exposure compared to conventional equity or fixed-income exposures
- May underperform during narrow stylistic-driven equity market rallies
- Shareholders are often required to pay a premium for shares
- Low current yield in absolute terms