CAPITAL GEARING TRUST: Port in a storm that preserves your capital

Investment trust Capital Gearing is the equivalent of a port in a storm. It quietly goes about increasing the value of shareholders’ investments through thick and thin.  

Capital preservation is an imperative, as is its steely determination to generate positive returns for investors. It invests in a range of assets – bonds, equities and property – to achieve these goals. 

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

To put this into context, the performance of the FTSE All-Share Index has veered from negative returns of 17.2 per cent (year to May 2020) to 28.3 per cent (year to May 2021). Overall, over the past five years, the trust has made profits of 37.3 per cent compared to 24 per cent from 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 keep performing against a backdrop of falling stock markets. This year, he says, the trust has generated a positive return of 2.8 per cent while most main stock markets such as the S&P500 and the 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] have performed well,’ says Spiller. ‘In fact, we’ve got more of the trust invested in assets such as property and equities than we had going into lockdown in spring 2020. Sitting on cash does not make sense, especially with inflation raging away in the background.’ 

Spiller believes inflation is here to stay as globalisation comes to an end for security reasons. It means that he is constantly looking for assets that provide the opportunity to make returns over and above inflation. The result is a portfolio with a big chunk of assets (35 per cent) in index-linked bonds, issued by governments in the UK, United States and Sweden. 

It also means investing in property companies such as stock market listed Secure Income. This £1billion fund lets properties to a range of corporate clients, with rents either rising by a fixed amount per year or in line with inflation. ‘It’s a well-managed trust and it protects a big chunk of the income it generates from the impact of inflation,’ says Spiller. 

He believes that share price valuations in the United States remain elevated. But he says he has plenty of ‘dry powder’ available if there is a sharp market sell-off and valuations fall to such a level that there are bargains to be picked up. The fund has been buying shares in investment trust Finsbury Growth & Income over the past month because they are under-priced compared to the value of the underlying assets. ‘It’s a good trust that is well run,’ says Spiller. 

His advice to investors is simple: ‘If you buy good value, low-risk assets you will do well. If you buy poor value, overvalued high-risk assets, you will do badly.’ He adds: ‘There are times when you can make high returns as an investor. And then there are times when preserving capital is key. Preservation is currently the name of the game.’ 

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