Sunday, 3 June 2018

Capital Gearing - Full Yr Results

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.

It is just over a year since the trust was added to my portfolio as a 'safe house' for some of the proceeds from various share sales.

There are a few trusts which offer to preserve capital such as Ruffer, Personal Assets and RIT Capital Partners. They all work on the principle that accepting a more solid but lower return from a diverse asset mix is a price worth paying for the peace of mind from not suffering potential losses from riskier or more concentrated assets.


The trust has recently announced results for the full year to 5th April 2018 (link via Investegate). Net assets per share have increased by just 0.1% and this is only the second year since 1982 in which growth has failed to match inflation. This was partly due to the recovery of sterling.


The focus of this holding is capital preservation rather than income. Last year the dividend was 20p however this year revenues have almost doubled and as they can only retain a maximum of 15% of revenue, the board have proposed an increase to 21p plus a special dividend of 6p making 27p for the year. The yield however is still less than 1.0%.

3 Yr Comparison -v- RIT and Personal Assets
(click to enlarge)

Asset Allocation

Over the past year the weighting for UK gilts has reduced in favour of US treasury TIPS. In addition the fund has significantly increased exposure to European property such as Residential Secure Income, Triple Point Social Housing, Vonovia and Deutche Wohnen. Property currently represents a higher proportion of the portfolio than traditional equities.

The assets include a mix of

equities (13%)
index-linked bonds (41%)
pref/corp fixed interest (17%)
other funds (8%)
property (17%)
cash/gold (4%)

The geographic split is

UK 51%
US 28%
Europe 13%
Other 8%

Commenting on the past year, manager Peter Spiller said

"In our judgement, the most successful investment funds going forward will be those that take advantage of the new opportunities that have opened up over the last 35 years; thus having an asset allocation that looks more like those that prevailed in the 19th century than the later part of the 20th.  Obviously, investment funds are once again free from exchange controls and there are numerous opportunities to invest in either specific overseas markets or to use the expertise of fund managers to analyse where the best opportunities lie through a global fund.

More recently entire new asset classes have sprung up in the closed-ended sector.  Hedge funds and private equity were not available 35 years ago, although investors should be aware of complexity and high fees of both classes.  Infrastructure funds in PPI, solar & wind power assets; loan funds; and property, both traditional and niche, all provide opportunities for diversification of equity risk and of income.

In our opinion the most significant newcomer to the universe of potential investments is the index-linked government bond market.  This market offers some protection from what looks like the main threat to savings over the next few years, namely resurgent inflation.  And with the absence of exchange controls, the TIPS market is easily accessible and is far better value than UK inflation linked bonds"...and concludes

"Capital preservation is the key objective of current portfolio allocation, until valuations return to more ‘normal’ levels. An objective of merely preserving value sounds modest. However if it is achieved whilst asset prices are normalising it will represent a significant achievement and lay the foundation for potentially more exciting returns in the future".

I am reasonably content with my first full year. The current share price is £40 which is a modest advance of 3.6% on my purchase price. In addition I have received last years divi 0.5% and this year's to come of 0.7%. I am also encouraged to see the ongoing charges have reduced from 0.89% to 0.77%...every little helps.

The trust provides a good counter-balance to some of my racier holdings such as Scottish Mortgage and Mid Wynd and the proof of the pudding will be the combined return on the whole basket at the end of 5 years.

So, back to the bottom drawer with this one and review again at the same time next year.

Feel free to comment below if you have any thoughts on investments which aim to preserve capital.

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