Wealth Preservation Funds/IT's

They are all quite credible ITs in the 'wealth preservation' space, with some having that as an objective more explicitly than others.

For example, PNL's objective is to preserve capital first, and make it grow, in that order. They don't expect to always deliver positive returns but to have success over the longer term by not losing money as badly as others, and by growing the pot when they can. CGT would like to achieve absolute returns across the asset classes, and their portfolio is "designed to represent 100% of the portfolio of an investor with a long term investment horizon, an aversion to capital loss and a preference for capital gain over income".

Each of these are multi-asset funds designed to be able to stand alone as someone's whole portfolio, and can shift the allocations as they see fit through active management and allocation decisions. With their relatively cautious approaches to preserving and growing wealth you would expect them to be less volatile than your equities funds in a downturn ; and hopefully, give you a better result than having an arbitrary fixed percentage of x% equities and y% bonds, otherwise what is the point of paying them for active management.

It is true that people are looking for alternative to bonds as diversifiers to equities as they become more cautious about outlook not just for equities but for bonds as well, with the very accommodative monetary policy of central banks of recent years. CGT's most recent annual report noted:

Our response to this environment is to remain defensively positioned with a principle focus on capital preservation. In practical terms this means our equity exposure remains extremely constrained, our corporate bond exposure is to high quality issues and our sovereign bond exposure is the shortest duration it has ever been.

So, at the moment they are trying to position defensively, so far as is possible; though that will not always be the case. Same for PNL and others - you would not expect them to always have the same preferences for fixed interest, linkers and cash when equity markets are cheaper or different bond markets yielding more, and history shows that they haven't. And this sort of fund is not a bond fund - they balance the low returns from the safe, short-dated bonds with investments in direct equities or in other investment trusts with that underlying exposure.

Effectively - assuming you don't want them as your whole portfolio because you are a more aggressive investor than that - you can include them in the more cautious end of your portfolio, but don't make the mistake of thinking, "hmm I only want 75% equity exposure and was thinking 25% 'bonds and other', but I am not sure what I'm doing with bonds so I am just going to get these 4 ITs to fill the 25%". Because if you do that, about half the 25% would still be equities. If you are going to take that sort of approach you would need to increase the 25% to something more meaningful (e.g. drop the aggressive equities component to 50% and bring the wealth preservation side up to 50% too) so that you do get a good slug of non-equities exposure as intended.

As you take it forward however, you will likely find that these trusts add more equity exposure when they believe it's sensible to do so, and at that point your portfolio will end up holding potentially quite a bit more equities than it would with the same proportion of your assets in these trusts today. If you trust their views on the market, that may not be a bad thing - and indeed, most people using them are using them because they want the managers to make decisions for them. But if you are the sort of person who wants to micromanage their own assets and know what percentage is in different types of bonds, equities, property etc at all times, these trusts are not for you.

Also, remember that recent events can flatter portfolios of all types. For example, part of CGT's annual report says:

Given this extremely defensive portfolio positioning we were delighted, not to mention surprised, that the portfolio delivered 13.4% returns over the year. These returns were only possible due to the marked weakness of sterling after the UK referendum decision to leave the European Union.

So, thinking "ooh, 13% performance from a defensive fund, that sounds nice, sign me up" may lead to disappointment. Indeed, the conclusion to the Chairman's report says:

For the twelve months ahead it may be that merely preserving the gains of previous years will be viewed as success

I have RIT in my ISA and PNL in my pension. I view RIT as being more adventurous than PNL. I don't think there is a need to hold RICA as well as PNL, they are both trying to achieve the same thing so pick one or the other of the two unless you are the type of person who wants several overlapping funds for each objective you have. I don't currently have any CGT but that doesn't mean it's a bad fund.

there's no real magic in "wealth preservation" funds.

generally, holding more equities gives you higher expected returns (but increases risk), and holding more bonds/cash/etc reduces risk (but also reduces expected returns). wealth preservation funds tend to hold a significant amount in equities, and a significant amount in bonds/cash/etc. hence they do indeed give you higher expected returns than putting the same money in bonds - but at the price of adding more equities, hence more risk.

as bowlhead said, you should look at wealth preservation funds as a mixture of equities and bonds, not as 100% bonds, when working out the overall allocations in a portfolio which includes them.

e.g. if you hold 40% equities, 30% wealth preservation funds, and 30% bonds, and those wealth preservation funds are about 1/3 in equities, then overall you have about 50% equities, 50% bonds.

so why use wealth preservation funds, when you could just buy 50% equities, 50% bonds, more directly (and, importantly, cheaply)? the main reason to do that is if you trust the wealth preservation funds to make good decisions about when to increase/decrease their exposure to equities. personally, i'm very sceptical about their ability to do that - there was a thread a while ago where bowlhead and i discussed this in relation to PNL specifically.

i do expect that any of these funds will do decent job of preserving wealth. but that is just because they hold a mixture of equities and bonds. any sensible mixed asset fund will do that, too (e.g. vanguard lifestrategy 40% or 60% - sorry, but i'm afraid it's a forum rule now that lifestrategy has to be mentioned on every thread ).