Bitcoin and investment trusts?

Mainstream player invests in cryptocurrency, but our customers eye capital preservation trusts.

Ruffer Investment Company (LSE:RICA) raised a lot of interest – and a few curious eyebrows – when it announced on 16 December 2020 that it has added bitcoin to its portfolio – the day before the cryptocurrency hit another record high.

The trust has taken the unusual decision to allocate 2.5% of the portfolio to bitcoin - something fund managers have tended to steer clear of – at least as far as the funds and investment trusts they manage are concerned.

Although two day’s trading data does not make a trend, it seems that private investors, looked closer at Ruffer Investment Company on Wednesday and Thursday, and in some cases were equally inclined to turn their attention to capital preservation focussed, multi-asset investment trusts more generally.

This all comes at a time when investors are increasingly looking for exposure to alternative assets. For example, beyond the investment trust world, where growth has been driven in large part by demand for alternative assets, customer fund exposure to mixed investments (40-85% shares) is up 30% between Jan – November 2020. 

Capital preservation investment trusts in focus

Ruffer Investment Company catapulted up the most bought investment trusts table on interactive investor to 33rd place from between 16 December (when the bitcoin news was announced) and yesterday (17 December) from 130th place between 1-15 December.

But Personal Assets (LSE:PNL) was higher, in 16th place (compared to 20th place between 1-15 December). Meanwhile, RIT Capital Partners (LSE:RCP) was in 41st place and Capital Gearing (LSE:CGT) was in 51st place in (compared to 33rd and 44th positions between 1-15 December, respectively).

Dzmitry Lipski, Head of Fund Research, interactive investor, says: “When anything is being mooted as an alternative asset class, it’s worth paying attention – and bitcoin has been around for over 10 years now. The news from Ruffer this week – as well as well-timed given the bitcoin record high – was also hugely significant in other ways. Rarely have we seen fund managers – and especially managers with a reputation for a capital preservation strategy – cross the threshold and introduce bitcoin, which has been seen as hugely speculative – into their shareholder portfolios (as opposed to their own).

“But rather than a potentially speculative bandwagon, Ruffer describe their move into bitcoin as a defensive hedge against monetary and market risks. But interestingly, our customers yesterday appear to have also used this news as an opportunity to look at capital preservation focussed investment trusts more closely. The jury may well be still out on bitcoin – but it seems that alternative assets more generally are still a huge growth area.

“Bitcoin may be useful as a diversifier in a portfolio for professional investors and they know better but it may take some time before bitcoin and other cryptocurrencies become a mainstream.

“Retail investors face excess amount of information (true and false) about bitcoin but they still cannot easily access it via conventional fund or other products. Therefore I’m still sceptical if bitcoin can challenge gold as an asset class.”

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “The stars seem to be aligning for Bitcoin. It has smashed the psychological mark of $20,000, and investment into the cryptocurrency from players from the mainstream investment industry serves to give further legitimacy to bitcoin – something frankly few people can claim to truly understand. 

“Bitcoin’s ascendency is difficult to ignore at a time where the traditional asset classes have struggled to produce good returns amid the coronavirus crisis, but we have seen all this before, and it’s come crashing down to earth in the past. Whether history will repeat itself remains to be seen, but there is a sense from some of ‘this time it’ll be different’, stoked by the participation of mainstream investment firms.

“The fact remains that bitcoin remains a risky and notoriously volatile asset. For many investors, the price swings have been simply too wild to stomach. Whether high-risk or low-risk, portfolio diversification remains the name of the game by assets and region to mitigate investment risk.”

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Full performance can be found on the company or index summary page on the interactive investor website.