Investment trusts can sometimes be a good starting point for beginner investors. It’s quick and relatively inexpensive to get invested in a diversified range of assets. You also won’t need to worry about spending too much time to research individual stocks either, as investment trusts are run by professional fund managers who make all the investment decisions on behalf of their shareholders.
On average, investment trusts tend to have lower management charges than open-ended funds, and historically, they have delivered better returns too.
For novice investors looking for a defensive investment, then the Ruffer Investment Company (LSE: RICA) deserves a closer look.
The trust was set up in 1994 by Jonathan Ruffer, and is currently managed on a day to day basis by Steve Russell and Hamish Baillie. It aims to preserve capital in all market conditions, while delivering an investment return ahead of that from cash.
The fund does this by investing in a wide range of asset classes, which include equities, bonds, gold and currencies. It’s defensively positioned, with just 45% of its portfolio invested in equities and other growth holdings. The remainder of its assets is mostly invested in index-linked bonds, which protects it from rising inflation and recession risk.
To explain the fund’s defensive positioning, the managers say they are worried about pricey valuations in stock markets and technical stresses and skews in financial markets. As they reckon the risk of a sharp sell-off in asset markets remains high, the fund holds significant positions in a number of options and protective illiquid strategies, giving it additional downside protection against a major sell-off.
Although the fund tends to only outperform traditional equity funds during bear markets, overall returns haven’t been all that bad in recent years in spite of its defensive strategy. Over the past five years, the fund has delivered total net asset value (NAV) returns of 19%, earning it a return significantly greater than cash savings.
Meanwhile, RIT Capital Partners (LSE: RCP) may be a better buy for investors looking for higher returns. The investment trust, which is chaired by Lord Rothschild, is renowned for its strong long-term performance and its agile investment approach.
Although, on balance, RIT Capital Partners is still considered as a “risk-averse” fund, it is somewhat more aggressively positioned than the Ruffer fund. On the positive side of things, the fund has delivered superior returns to the Ruffer fund, with a total NAV gain of 61% over the past five years.
In addition to an equity exposure averaging 44% over the past 12 months, it is also invested in private unquoted companies and absolute return and credit assets. This diversified approach, overlaid with its prudent currency positioning and macro exposure management, should help it to deliver an attractive combination of long-term growth and capital preservation.
Fund management charges are relatively low, with an ongoing charges ratio of 0.66%. Shares in the fund currently yield 1.7% and trade at a 2.4% premium to its last reported NAV.