Risk-averse investors are now asking whether AI and technology stocks are in a bubble. The AI trade has boosted the performance of the US equity market for some time, but many now believe the market is overvalued.
Bears argue we are close to a market top and see signs of irrational exuberance everywhere they look. Elon Musk’s SpaceX (NASDAQ:SPCX) recently floated at a stratospheric valuation.
Craziest IPO in history?
Legendary investor Jeremy Grantham, co-founder of GMO Asset Management, has dubbed SpaceX ‘the craziest IPO in the history of man’. Meanwhile, hundreds of billions of dollars are being spent annually on AI infrastructure. And the share prices of memory-chip makers have rocketed higher.
One argument against the bubble theory has been that the earnings from big tech giants have been so strong. And these earnings have comfortably covered their expenditure. But that is changing. Some of these hyper-scalers are issuing debt to fund their AI operations. Understandably, this is making many investors skittish.
Inflationary fears
Inflation is another reason for caution. Markets have endured inflationary shocks from Covid, Russia’s invasion of Ukraine, tariffs and the war in Iran. And when the full impact of inflation is felt, assets such as long-dated nominal bonds may offer poor protection for capital.
In one of the perma-bear’s bleakest-ever calls, Grantham recently called this ‘the most expensive market in American history’. He also warned that a reversion to trend would be closer to a wipe-out than a routine market correction.
Given this uncertain backdrop, risk-averse investors may be looking to diversify portfolios away from the AI boom. Just in case a bust is round the corner.
Trusts can protect capital
A great place to start your research is the UK investment trust sector. Here, you will find a number of defensive funds with formidably strong long-run track records.
Three investment trusts in particular are renowned for their ‘wealth preservation’ qualities. These defensive funds are designed to come to the fore with positive share price moves or lesser declines during market sell-offs.
These capital preservation trusts are designed to help you ‘sleep at night’. Their portfolios are tailored to limit volatility and protect purchasing power against the ravages of inflation.
In this article, we shine the spotlight on this trio of capital preservers and explain how they are currently positioned. We also highlight two other trusts with defensive attributes which should also protect capital during a market drawdown.
Personal Assets Trusts (LON:PNL)
One savvy way to fortify your portfolio defences is to buy Personal Assets (LON:PNL), whose purpose is primarily to protect investors’ capital, then to grow it. The trust is managed by Troy Asset Management’s Sebastian Lyon and Charlotte Yonge.
Personal Assets aims to deliver positive absolute returns over the long term while placing a strong emphasis on capital preservation.
Diversified & defensive
This diversified, multi-asset portfolio invests across equities, inflation-linked and short-dated government bonds as well as gold. As at 30 June, equities spoke for 37% of the portfolio with top 10 positions including quality names Visa (NYSE:V), Alphabet (NASDAQ:GOOG) and Unilever (LON:ULVR). None of the big semiconductor stocks featured in the top 10.
| Share price: 536p | Discount to NAV: 1.2% |
| Total assets: £1.67bn | 10-yr share price total return: 54.5% |
Source: The AIC/Morningstar
The trust was 8.4% invested in gold bullion and had 15.9% of its assets in US TIPS and 9.5% of its assets in Japanese government bonds. Personal Assets believes holding Japanese Yen provides diversification. Yen exposure should also act as a buffer should the US dollar weaken or stock markets turn more risk averse.
In a risk-on market, Personal Assets is unlikely to shoot the lights out. But the trust has demonstrated resilience during previous periods when markets turned risk-off.
Personal Assets also has one of the most effective discount control mechanisms in the investment trust sector. This helps to keep its share price closely aligned with net asset value (NAV).
Ruffer Investment Company (LON:RICA)
Another capital preservation specialist is Ruffer (LON:RICA). This trust aims to deliver positive returns in all environments. Ruffer boasts a strong track record of making good returns while limiting drawdowns, especially during market crises.
In a sign that investors are starting to value trusts offering defensive exposures, Ruffer’s discount to NAV has narrow since February 2026. For a time recently, the trust traded at a rare premium to NAV.
Multi-asset attractions
Managed by Jasmine Yeo, Ian Rees and Alexander Chartres, Ruffer’s multi-asset portfolio contains everything from inflation-linked bonds to gold and precious metals and credit and derivative strategies.
At last count, the five largest equity holdings included BP (LON:BP.), Alibaba (NYSE:BABA) and Amazon (NASDAQ:AMZN).
Ruffer generated a double-digit NAV return during 2025. Crucially, the fund generated positive returns when markets rallied as well as when they were roiled by the tariff tantrum. Derivative strategies targeting equity markets, credit spreads and volatility were key to the performance in that down market. And these strategies remain an important component of the portfolio.
| Share price: 293p | Discount to NAV: 3.3% |
| Total assets: £893m | 10-yr share price total return: 52.7% |
Source: The AIC/Morningstar
In the managers’ opinion, higher inflation is likely to remain a defining characteristic of the Western economy for years. They argue Ruffer’s allocation to gold mining equities should perform when inflation and inflationary fears are high.
‘We remain convinced that the bedrock role bonds served in investor portfolios over prior decades is now over, and we continue to search for additional, more reliable sources of diversification and protection,’ explain the managers.
Kepler Trust Intelligence points out: ‘RICA has shown itself to be a valuable investment during past crises, and its unconventional positioning, based on deep thinking about the real drivers of the economy and of markets, could come into its own when some of the cracks (appearing in stock markets) start to widen.’
Capital Gearing Trust (LON:CGT)
Investors seeking shelter from future market storms and the ravages of inflation might examine the merits of Capital Gearing (LON:CGI). The £810 million cap trust aims to preserve and grow shareholders’ real wealth over time.
While the FTSE 250-listed fund has a long-term investment horizon, it has an aversion to short-term losses. That means greater emphasis is placed on avoiding losses than on maximising returns.
Inflation-beating pedigree
Capital Gearing is steered by CG Asset Management trio Peter Spiller, Alastair Laing and Chris Clothier. The trust aims to beat inflation over the medium term by at least 2%, compounded over time. The wealth preserver’s portfolio proved defensive during the sell-offs relating to US tariffs and the outbreak of the Iran war.
The trust also has pedigree when it comes to growing investors’ real wealth by delivering returns in excess of inflation. In fact, Capital Gearing has outperformed CPI by 1.9% per annum over 10 years and 2.5% per annum over 20 years. Under Spiller’s tenure, the trust has exceeded inflation in 37 of the last 44 financial years.
| Share price: £51.80 | Discount to NAV: 0.03% |
| Total assets: £810.6m | 10-yr share price total return: 64.3% |
Source: The AIC/Morningstar
The managers believe we have moved from a disinflationary world with falling interest rates to an inflationary environment with higher interest rates. Should markets start to price in greater inflation and inflation volatility, they believe Capital Gearing ‘should perform much better than the 30% or 40% in conventional bonds that investors are often herded into owning as they approach retirement’.
Capital Gearing does have exposure to risk assets, predominantly through other investment trusts. The strategy is to buy trusts on discounts to NAV, where there is a catalyst for those discounts to close.
BH Macro (LON:BHMG)
Investors concerned about a painful popping of the AI bubble might consider portfolio diversifier BH Macro (LON:BHMG). This company offers exposure to the flagship macro hedge fund managed by successful global hedge fund firm Brevan Howard.
BH Macro’s more recent NAV returns have been relatively muted against the backdrop of a high-flying equity market. But since its 2007 IPO, BH Macro has delivered strong NAV returns in absolute terms. In fact, the sterling share class has compounded at 8.27% per annum with relatively low NAV volatility.
Calm in a crisis
But the fund’s best periods for returns tend to be when equity markets are struggling and experiencing volatility. On the downside, monthly losses have been limited due to trade structuring, portfolio diversification and a strong risk-management process. This gives rise to the ‘convex’ nature of returns.
Since the IPO, the fund has only suffered three negative years in terms of NAV performance. In these years, BH Macro’s NAV has only fallen by a few percentage points, yet in its best years the portfolio has delivered upwards of 20%.
| Share price: 424p | Discount to NAV: 6% |
| Total assets: £1.43bn | 10-yr share price total return: 119.7% |
Source: The AIC/Morningstar
Chairman Richard Horlick tells Sharesify: ‘What BH Macro does is provide a listed share which enables an individual to buy a very small portion of Brevan Howard’s master fund. History shows that in the 20 biggest down months that the S&P 500 has had since we’ve been in existence, we’ve been positive in 17 of those.’
Horlick believes BH Macro is ‘a very good diversifier for someone who is particularly concerned about levels of equity markets and levels of bond markets.’
Rich seam of opportunity
Kepler Trust Intelligence concurs: ‘BH Macro may look increasingly relevant for investors wishing to build a truly diversified investment portfolio,’ says the research firm.
‘President Trump’s unpredictable approach to policy may continue to have repercussions around the world for years to come. Diverging central bank responses to economic shocks, such as that posed by the war in Iran, are typically a rich seam of opportunity for macro traders such as Brevan Howard’s team, and so the current discount may be an attractive entry point for those who wish to get access.’
Bear points to consider include the lack of transparency in terms of underlying positioning and the fact BH Macro can suffer bouts of lacklustre returns. As a hedge fund, its fees are higher than for traditional funds and investment trusts.
Temple Bar Investment Trust (LON:TMPL)
Patient portfolio builders keen to protect hard-earned gains from any market correction could consider options in the AIC’s UK Equity Income sector. Why is this? Well, the UK stock market has a very different sector composition from global equity indices.
Basically, the UK has a greater skew towards lowly-valued, cash generative sectors such as financials, energy and healthcare. This can make it a useful diversifier for portfolios that have become overly-reliant on AI-driven growth.
Worship at the Temple
One compelling UK Equity Income option is Temple Bar (LON:TMPL), the sector’s best five-year share price total return performer with a 120%-plus haul. Managed by Nick Purves and Ian Lance, Temple Bar seeks to provide growth in income and capital to achieve a long-term total return greater than the FTSE All-Share. As of 30 June, UK equities spoke for 71.4% of the portfolio.
| Share price: 400.5p | Premium to NAV: 0.8% |
| Total assets: £1.27bn | 10-yr share price total return: 183.3% |
Source: The AIC/Morningstar
Temple Bar pursues a value investing strategy. This is the process of buying a company’s stock for less than its true worth, sometimes known as its intrinsic value. By buying at a discount, this strategy builds in a ‘margin of safety’. As a result, we think Temple Bar would hold up better than most other equity funds during a market correction.
The portfolio has significant exposure to financials and communication services. Major holdings in the latter camp include BP (LON:BP.), WPP (LON:WPP) and ITV (LON:ITV).
The trust also has meaningful allocations to consumer stocks including foods-to-fashion retailer Marks & Spencer (LON:MKS) and tech products purveyor Currys (LON:CURY). Information technology accounts for less than 2% of the portfolio.
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