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Is Personal Assets Trust plc or Perpetual Income & Growth plc the best defensive fund for troubled times?

The stock market wall of worry has rarely been more daunting than it is today. Brexit, President Trump, impending French elections, the Chinese credit bubble, a strengthening dollar and global debt mountain give us plenty to worry about.

Some people may think this is a good reason to quit shares altogether, but they would be wrong. Equity investing is the best way to build your long-term wealth, and that wall of worry is always scaled in the end. However, it can make sense to have a safety net.

Up close and personal

Investment trust Personal Assets Trust (LSE: PAT) is designed for days like these. The fund’s remit is to try to make as much profit as we safely can when markets rise and minimise losses or even achieve modest gains when markets fall. It does this by investing in a spread of mostly US and UK blue-chip stocks that will be familiar to regular Foolish readers, including Philip Morris, British American Tobacco, Coca-Cola, Nestlé, Microsoft, Berkshire Hathaway, Unilever, American Express and GlaxoSmithKline.

That is possibly the most solid, defensive line-up of stocks I can remember, but the trust throws in US Treasuries and UK gilts, just to be sure. Personal Assets Trust has reported today and put in a solid performance. Over the six months to 31 October 2016 its net asset value (NAV) per share rose 7.5% to £394.85, while the share price climbed from £372.50 to £397, up 6.5%.

A question of trust

If that isn’t shoot-the-lights-out-performance, it isn’t meant to be. The fund’s investment adviser Sebastian Lyon can see plenty of virtue in being so cautious in these troubled times, pointing out that the FTSE 100 Index has now traded between 6,000 and 7,000 for three and a half years. He is wary of rising political anger now that “Trump has trumped Brexit”, warning that “political outcomes are likely to offer investors asymmetric risks, skewed to the downside”, and is responding defensively.

The trust’s share price is up 14% over the last year, according to Trustnet, but just 24% over five years. This compares to returns of 12% and 49% on the HSBC FTSE 100 tracker over the same period, which suggests that caution doesn’t always pay.

Perpetual question

Tell that to Mark Barnett, who runs £1.1bn investment trust Perpetual Income & Growth (LSE: PLI), which targets primarily on UK blue-chip FTSE 100 favourites, plus some FTSE 250 and international exposure. Top holdings include Reynolds American, British American Tobacco, AstraZeneca, BP, Imperial Brands and BAE systems. It has returned an impressive 78% over the past five years but is more inclined to volatility than Personal Assets Trust, falling 7% over 12 months.

Barnett favours companies with visible revenues, profits and cash flow, and aims to deliver capital growth and a growing dividend over the long term. His trust currently yields 3.5% and trades at a 5% discount to NAV. Personal Assets Trust, by contrast, yields just 1.45%, and trades at a small premium of 0.99%.

Perpetual Income & Growth’s Recent disappointing performance may be down to its exposure to financial and pharmaceutical stocks, which have struggled lately. Barnett has delivered a total return of 437% since 1999, double the sector average. The discount, higher yield and proven long-term outperformance makes this the pick of the two funds for me — but for sheer defensive solidity, Personal Assets Trust is hard to beat.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.