Thursday, 30 May 2019

Capital Gearing - Final 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 two years since the trust was added to my portfolio as a 'safe house' for some of the proceeds from various sales. After several years of above-average returns from equities, it seemed like a good plan to shelter the profits and de-risk the portfolio.

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 2019 (link via Investegate). Total return per share has increased by a respectable 7.9% with net assets increasing to £40.82.


The focus of this holding is capital preservation rather than income. Last year the dividend was 27p however this year revenues have again increased to 51p and the board have proposed an increased payout of 30% to 35p which includes a special dividend of 12p. The yield however is still less than 1.0%.

Asset Allocation

The portfolio is currently very defensive with 35% in cash or short-dated gilts and a further 25% in US inflation linked government bonds. Then there is 18% allocated to preference shares and corporate debt. A further 15% is allocated to property and then a similar percentage to equities.

I was particularly pleased to note that new positions have been opened in renewable energy infrastructure with the additions of John Laing Env. Assets Trust, TRIG, Greencoat UK Wind, Foresight Solar and Greencoat Renewables. The combined returns from these additions was 20% so I hope this will encourage the management to increase their weighting over the coming year.
Commenting on the year, manager Peter Spiller said

"With real rates set to remain at historically low levels, it is not easy to identify a short-term catalyst that will bring an end to the current business cycle and the associated powerful equity bull market. The fragile macro-economic backdrop, combined with elevated equity and bond valuations, suggest that portfolio returns will be modest over the medium term and could be negative if there is a period of recession. 

As with the past year, capital preservation remains the key objective of portfolio allocation, until valuations return to more attractive levels. An objective of merely preserving capital sounds modest. But, if it can be delivered over a period of normalising asset prices it will represent a significant achievement and lay the foundation for potentially more exciting returns in the future".

3 Yrs Comparison v FTSE All Share
(click to enlarge)

I am reasonably content with my first couple of years. Certainly I would be happier if the trust did not have 2.2% holding in a FTSE 100 ETF and maybe that positition will be reduced in due course. The current share price is £42.50 which is 10% up on my purchase price. In addition there is a further 2% in dividends so an average of 6% p.a. is not too bad for a very defensive portfolio. I am also encouraged to see the ongoing charges have reduced from 0.77% to 0.70%...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.

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!

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