Fund spotlight: Capital Gearing

22nd March 2021 13:48

Dzmitry Lipski from interactive investor

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Our head of funds research offers a view on one of our Super 60 fund picks.

The Super 60 trust

Listen or read about the trust, it’s your choice.

Capital Gearing (LSE:CGT) investment trust has two objectives; to preserve capital over any 12-month period and to deliver returns well in excess of inflation over the longer term. It aims to achieve its investment objectives through a long-only, multi-asset portfolio of bonds, equities and property, with small holdings in infrastructure, gold and cash.

Rather than using exotic strategies or derivatives, the trust’s approach to avoiding large drawdowns has been to hold a highly diversified portfolio of assets with some negatively correlated to risk assets. For this, the team use index-linked government bonds and also gold and safe-haven currencies.

What does it invest in?

The trust has been managed by highly regarded investor Peter Spiller since 1982. Spiller is completely flexible in its asset allocation, with the manger only investing where he sees value. Around 50% of the portfolio is invested in funds/equities. For example, two of the largest/core equity holdings are Pershing Square Holdings (LSE:PSH) and Tritax Big Box (LSE:BBOX), which significantly outperformed their benchmarks in 2020.

The portfolio also has a big emphasis on US Treasury Inflation-Protected Securities or Bonds (TIPS), which account for around 30%. Such bonds offer protection when stock markets fall, as well as providing a shield against inflation. Inflation is at low levels, but Spiller believes that it will elevate in the years to come, in part due to the huge government borrowing that has taken place in response to the Covid-19 pandemic.

Performance

Under Spiller’s long tenure, the trust has delivered positive total returns in 37 out of 38 years. The trust has also been a great preserver of wealth in bear markets, including the dot-com crash and the global financial crisis and, most recently, during market sell-off in 2018 and 2020.

  01/03/2020 - 27/02/2021 03/03/2019 - 29/02/2020 04/03/2018 - 23/02/2019 05/03/2017 - 24/02/2018 06/03/2016 - 25/02/2017
Capital Gearing Trust 8.21 6.50 6.48 0.66 13.29
FTSE All Share Index 3.50 -1.99 4.88 3.21 20.04
AIC Flexible Investment Sector 6.12 -0.39 -1.53 6.83 18.32

Source: Morningstar as at 29th February 2021

Why we recommend it

We view this trust as a good fit for a core holding due to its defensive stance and high levels of diversification. In addition, the trust would complement funds and trusts with more adventurous risk profiles.

It is also worth pointing out that the trust adopted a zero-discount policy in 2015 to ensure the price of shares in the trust trade as close as possible to the underlying net asset value (NAV) per share. And the policy has contributed towards the substantial growth of the trust in recent years.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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