Friday, May 27 2022

CAPITAL GEARING TRUST: Port in a storm that preserves your capital – it increases shareholder investment value through thick and thin

The Capital Gearing investment trust is like a port in a storm. It’s about quietly increasing the value of shareholders’ investments against all odds.

Capital preservation is imperative, as is its unwavering determination to generate positive returns for investors. It invests in a range of assets – bonds, stocks and real estate – to achieve these goals.

Over the past five years, the trust has done its job. Slicing the five years into separate one-year periods, it generated returns ranging from 3% (year to May 2020) to 13.7% (year to May 2021).

To put this into context, the performance of the FTSE All-Share Index has gone from negative returns of 17.2% (year to May 2020) to 28.3% (year to May 2021). Overall, over the past five years, the trust has made profits of 37.3%, compared to 24% for the UK stock market.

The trust is overseen by Peter Spiller, founder of investment house CG Asset Management, and managers Alastair Laing and Chris Clothier. Spiller is proud of the trust’s ability to continue to perform in a declining equity market environment. This year, he says, the trust has generated a positive return of 2.8% while most major stock markets such as the S&P500 and Nasdaq in the United States and the Nikkei 225 in Japan have fallen sharply.

“The Trust’s Risk Assets [bought to generate returns, rather than simply to preserve capital] performed well,” says Spiller. “In fact, we have more confidence invested in assets such as real estate and stocks than we had before the lockdown in spring 2020. Sitting on cash doesn’t make sense, especially with inflation raging in the background.”

Spiller thinks inflation is here to stay as globalization comes to an end for security reasons. This means that he is constantly on the lookout for assets that offer the possibility of earning returns above inflation. The result is a portfolio with a large portion of the assets (35%) in indexed bonds, issued by the governments of the UK, US and Sweden.

It also means investing in real estate companies such as publicly traded Secure Income. This £1billion fund rents properties to a range of corporate clients, with rents increasing either by a fixed amount per year or in line with inflation. “It’s a well-run trust and it shields a lot of the income it generates from the impact of inflation,” Spiller says.

He believes that equity price valuations in the United States remain elevated. But he says he has plenty of “dry powder” available if there is a strong sell-off in the market and valuations fall to such a level that there are bargains to be had. The fund has bought shares in the investment fund Finsbury Growth & Income over the past month because they are undervalued compared to the value of the underlying assets. “It’s a good trust that’s well managed,” Spiller says.

His advice to investors is simple: “If you buy value-for-money, low-risk assets, you’ll do well. If you buy low-value, overvalued high-risk assets, you’ll do poorly. He adds, “There are times when you can get high returns as an investor. And then there are times when capital preservation is essential. Preservation is currently the name of the game.’

Capital Gearing’s stock ID is 0173861 and its stock code is CGT. In the last financial year, it paid an annual dividend of 45p per share (its shares are currently priced at just over £51). The annual charges total 0.58%.

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