This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
It hasn’t been the most ebullient of years for investors. Every day seems to bring more chaos and further calamities, with lots of portfolios heading into the red as a result.
Not everyone is feeling the heat though, as some trust managers have been able to deliver returns for shareholders in the year to date, despite the various headwinds working against them.
That’s not necessarily indicative of their long-term prospects. Just as they’ve performed well so far this year, it’s always plausible that they could see a slump in the next six months, or further down the line.
Nonetheless, it’s still interesting to look at how they’ve managed to outperform thus far, even if it’s only so we can say to ourselves, ‘ah, that’s how they did it’, and then feel the tinge of regret that usually comes with the benefit of hindsight.
One of the more famous outperformers so far in 2022 is Ruffer (RICA). The trust is very much a ‘does what it says on the tin’ type of fund. It’s not going to chase trends or invest in flashy stocks, but it has continued to chug along and deliver returns for shareholders since launching in 2004.
In some ways, the trust’s ability to protect capital in that time has been just as impressive as its returns. If you were to look back at the trust’s share price over the past 15 years, you would probably struggle to pick out the financial crisis of 2008, the Brexit vote, the initial Covid crash, or the inflation-driven declines of the past.
The trust’s managers have typically navigated these sorts of events with much lower drawdowns than their peers or, as is the case this year, even seen gains following them.
That reflects the approach Ruffer takes of preserving capital, rather than looking to see massive gains. Hedge fund manager Mark Spitznagel has written that “risk mitigation can and should be thought of as additive to portfolios over time”.
Ruffer arguably proves this to be the case, with a portfolio that contains a mix of inflation-linked bonds, gold, and derivative hedges, helping to drive returns, even in the current macroeconomic environment.
Two other trusts that have seen positive returns in 2022 have done so for rather different reasons to Ruffer.
Middlefield Canadian Income (MCT) has seen a couple of sudden leaps in its share price so far this year. The macro picture was likely partly responsible for this. Canada’s large hydrocarbons sector looks set to benefit from rising prices and the country’s stock market also has a large weighting towards financials, which may benefit from higher interest rates.
But MCT has also positioned itself well to benefit from a bounce back in the Canadian economy post-Covid. The trust has a sizeable exposure to the real estate sector and many of these holdings look like good hedges against rising inflation.
Valuations may also have played a role. As the ‘income’ part of its name suggests, MCT is more geared towards the sort of income-paying companies that have been less fashionable over the past 10 years but have seen much more appeal in 2022.
It’s a somewhat similar story with BlackRock Latin American (BRLA). The trust had a tough time during the pandemic, with currency depreciation and poor management of the coronavirus hurting returns for the trust over the past couple of years.
Economic recoveries across Latin America, as well as sizeable increases in currency valuations, helped to turn things around for the trust in the first quarter of the year, during which time it was the best-performing closed-ended fund on the London Stock Exchange.
The trust also has significant exposure to the sorts of cyclical stocks – particularly financials and commodities – that look likely to cope well with inflation, or even benefit from it.
Again, it’s not clear these trusts will continue to perform well in the months or years ahead. But it does go to show that, even amid massive global chaos, some managers have been able to navigate volatility and deliver returns for their shareholders.
Past performance is not a reliable indicator of future results
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