Personal Assets Trust (PNL) – a hedge fund in all but name

Personal Assets Trust (PNL) reported its annual results yesterday (05.06.13), demonstrating the extent to which it is managed in a different way to other investment trusts. NAV per share was up 4.8% in the year to 30.04.13, compared to a rise of 13.6% in the FTSE All-Share. This performance may be disappointing to some but we like the fact that:

a) This is a trust that effectively has an absolute return mandate. The results announcement stresses that the investment policy of the trust is to protect and increase (in that order) shareholders’ funds per share over the long term. One might think this was an obvious policy but in fact most funds (be they investment trusts or OEICS) are managed so as not to deviate too much from a particular benchmark or index, rather than to preserve the capital of investors.

(b) The fund Manager clearly has the courage of his convictions (being prepared to be wrong in the short term), but the long term record is admirable; NAV per share has increased by 36.7% over 5 years and 88.9% over ten years to 30.04.13, which compares with 9.4% and 79.2% for the FTSE All-Share.

The trust has an enviable ability to issue new shares (demonstrating its popularity with private investors and their wealth managers); this both increases liquidity in the shares (therefore narrowing the spread) and marginally increases NAV per share, when the shares are issued at a premium. We calculate that over ten years this ability to issue new shares at a premium may have increased NAV by approaching 2%.

The latest portfolio analysis (31.05.13) clearly indicates where the manager is coming from:

Even the equities here are largely defensive in nature, with the three largest holdings being Microsoft, BAT and Becton Dickinson (a medical technology company). With these defensive equities and the large exposure to gold and inflation linked bonds, the thesis is clear: Central Banks globally have been pumping liquidity in to financial markets and sooner or later this will result in destructive inflation.

We may not agree totally with this thesis, partly because the liquidity provided by Central Banks is only matching the liquidity withdrawn by others (see for example the article by Martin Wolf in the FT of 05.06.13 where he points out that the US money supply in April 2013 was only 0.7% higher than it had been in October 2008, despite the expansion of the Federal Reserve’s balance sheet); nonetheless, there will be tricky times ahead, and we like the low risk approach of the trust and its concentration on private investors. We therefore include it in our Alternative portfolio. It is after all, really a hedge fund, in the best sense of the word.