Thursday, 18 May 2017

Capital Gearing Trust - New Purchase

Over recent months I have become increasingly cautious regarding my equity investments. The US markets appear to offer little more upside - CAPE ratios have only been higher in 1929 and 2000. Of course the current bull run could carry on for some time but there will be no 14 day warning when the markets turn. The UK markets will not be immune from any US bear market and as I have had a very good run in recent years, it is prudent to rebalance my portfolio.


Some of my disposals over recent weeks include partial sales (top slice) of Aberforth, City of London and Edinburgh and complete sales of Dunedin Income, Invesco Income and Law Debenture Trust. Share sales include Amec Foster, Berkeley Homes, IMI, Unilever and IG Group  (which leaves just Next and Legal & General).

I have therefore taken a look at a few options for investing some of the cash building up from these sales. One addition has been iShares Corp. Bond (ex fin). In the past I have held Personal Assets Trust to protect some of the gains but for now I have settled upon Capital Gearing.

CGT has been managed by Peter Spiller for the past 35 years over which period he has a very good track record. The only negative return over this period was a loss of 2.5% in 2014. He successfully navigated the financial crash of 2008/09, making 6% return for investors that year while the FTSE All Share was down 30%. 
 
CGT v PNL (click to enlarge)

Average annualised returns since 1982 have been ~14% p.a. compared to ~10% for the All-Share index

The aim of this trust is firstly to preserve capital and then to achieve capital growth in absolute terms rather than relative to a particular stock market index, principally through a wide variety of investments including variable weightings of  investment trusts, cash, bonds, index-linked securities and commodities when it is considered appropriate.

Peter Spiller

The trust finished 2016 with a very defensively positioned portfolio -  a low allocation to equities and an emphasis on short-duration in the fixed income portfolio. Spiller believes that high asset prices mean that the prospects for medium-term returns are muted.

The current allocation  :
Investment Trusts 33% (includes equity, property and infrastructure)
Index Linked Gilts 35%
Corp. Bonds 21% (incl preference shares)
Gilts    5%
Cash    5%
Gold    1%

For many years the trust share price traded at a significant premium to net asset values but the management introduced a discount control mechanism in 2015 which helps to reduce volatility and keep the price closer to NAV.

The trust has ongoing charges of 1.0% however, in addition, there will be charges associated with holding the investment trusts.

My initial entry price earlier in the week was £38.60.

In the most recent quarterly report the manager observes "...that prospective returns are as low as they have ever been, our principal role as stewards of your money is return of your capital, rather than return on your capital. The portfolio is defensively positioned and likely to remain so for the foreseeable future".

The final results for the year to April 2017 are due end May.


As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

3 comments:

  1. Replies
    1. Good question GeordieBoy. As RIT is in the same sector as Capital Gearing (Flexible Investments) I did have a brief look but the weighting for equities was too high for my requirements and also the premium to NAV was on the high side so decided to go with CGT as I think it offers more defensive qualities.

      However RIT will remain on my watchlist and could be a good addition at some point.

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  2. I have RIT and PNL and am looking at CGT. Agreed on the need to consider being more defensive at the moment.

    ReplyDelete