Capital Gearing Trust

Moe_The_Bartender

Having enjoyed several years of good capital appreciation, I'm now looking to hang on to what I've got. Bit of background - I'm 70 drawing my state pension and a private pension which absorbs the rest of my personal allowance.

I've roughly £500k which is 11% property, 7% cash and the rest in equities. A friend has suggested CGT to cushion any downside so I'm considering putting up to 20% in it. It has a good track record over many years and looks like a decent safe home.

Any views please?

ColdIron

CGT is a well know wealth preservation fund, it stood up very well during the global financial crisis 2008/09. Others often mentioned in the same breath that you might consider are Personal Assets (PNL), Ruffer (RICA) and, at the racier end of WP funds, RIT Capital Partners (RCP)

You might want to have a look at this thread particularly post #2
https://forums.moneysavingexpert.com/discussion/5709276/wealth-preservation-funds-its

Linton

I do not hold Capital Gearing but do have a Wealth Preservation portfolio of similar size to yours with similar funds:

Trojan O - a good solid long term performance which did not suffer much during the 2008 crash.
Ruffer IT - it performed OK in 2008 but not as well as Trojan O. It has not done its duty over the past year so I may transfer the money to CGT.
RIT Capital Partners (RCP) - this is linked to the Rothschilds and has a growth and wealth preservation remit. The fund has a much higher return that the other two but is more defensive than a 100% equity fund dropping about 20%-25% in the 2008 crash. It invests significantly in unquoted stock and so is somewhat different to other equity funds.

I also have a significant holding in Jupiter Strategic Bonds.


I suggest you hold more than one WP fund as the performance can be very dependent on the managers skill.

DrSyn

Just remember that Capital Gearing is an investment trust so there is the premium/discount to consider.

Also PNL, RICA and RIT, have a premium/discount.

A_T

Wealth preservation funds like Ruffer, Capital Gearing, etc are well known for performing well during the credit crunch - but then so did government bond index trackers. Back then we didn't have low cost multi-asset funds like Vanguard Lifestrategy and Fidelity Multi-Asset Allocator.

Since the crisis wealth preservation funds have not performed as well as the low cost multi-asset funds - Ruffer has done particularly badly.

Ruffer, PNL, CGT are currently betting on US Dollar inflation-linked bonds being the answer to a bear market - personally I'd be wary of committing too much to this strategy.

seacaitch

DrSyn wrote: »

Just remember that Capital Gearing is an investment trust so there is the premium/discount to consider.

Also PNL, RICA and RIT, have a premium/discount.

CGT & PNL both have discount/premium control policies in place (CGT's policy instigated more recently than PNL's); hence, while they've enjoyed continued investor demand, both trusts have been getting steadily larger as new shares are issued.

bowlhead99

A few thoughts:

Firstly with the figures you mentioned, you mention only 11% property on 500k, being about 55k - should we assume that is investment, and the whole 500k mentioned is excluding the property you live in? If you don't separately own the property you live in and are just renting, that would be a good use of funds (being tax efficient and a long term store of value).

Based on the percentages, about 410k in equities and presumably that's what you are thinking of swapping into CGT to make 310k equities and 100k CGT. CGT is only 35% in equity and property funds at the moment, with half the rest in index linked bonds and about 30% in other government and corporate bonds and cash.

So, by buying CGT you would not get your overall equities exposure as low as the 'headline' 310k, more like 325-330k+ because CGT does have equities and will hold more equities when it sees better prospects for them; but based on the latest factsheet, equities would be under 70% of your total 500k, while property goes up to around 15% and the rest is filled with bonds and cash.

It sounds like that mix would do a better job of 'hanging on to what I've got' than your current mix where equities are over 80%, though some people would be more conservative and drop their total equities (including the equities held within mixed asset, wealth-preservation type funds) to 60% or below.

Really it depends what your eventual goal is for the 500k that you want to 'hang on to'. Are you drawing it down to supplement your pension income? Or you expect to not need it until between 2039 and 2049 to fund a solid decade of care home costs between age 90 and 100? Or you want to give half of it away to your kids or grandkids in about ten years from now so they can fund some life events, get on the property ladder or improve what they have. People have different ideas about what they have actually saved / invested their money for.

Say you buy CGT for 100k and end up with exposure to about 330k of equities. If there is a hard global equities crash and the value of the equities drops by 50%, that would be a drop of 165k, which is a third of your 500k pot. Are you OK with that? And obviously the property holdings could decline at the same time.

We know there will be big crashes every so often which is presumably what you are trying to avoid too much pain from; the speed of recovery from such a drop is uncertain, and if you were planning on (e.g.) drawing out £thousands one year while asset values are depressed, it would eat relatively more of your pot than if you drew out the £thousands when they were not, and put them into non-equities instead.

An overall asset allocation for an individual, is quite personal and depends on their overall objectives and goals and their appetite for risk. Importantly it also depends on their likely behaviour when faced with paper losses - if your equities were down by £100k+ and everyone was talking about how much worse the markets could get, would you sell out of the rest of them to avoid further losses, making that loss permanent when the market went back up without you? Or would you instead use some of your cash and property to buy more equities and hope to benefit from the recovery? What people say they will do is often quite different to what they would actually do when faced with the harsh reality.

The above comments are really just looking at what a move into CGT would mean for your asset mix rather than what you were perhaps looking for which was just views on CGT generally. You ask:

I'm considering putting up to 20% in it. It has a good track record over many years and looks like a decent safe home.

It does have a good record over many years, though you should recognise that bonds went on a 30+ year bull run and have only relatively recently moderated their boom with some slight interest rate increases or unwinding of QE around the world; and global equities have been going up solidly from their low point at the end of the last great crash in March 2009 (more than a decade ago now), with only a few minor blips downwards every few years since then.

So, a fund holding bonds and stocks and property while all those asset classes were boosted by low global interest rates (and non-UK assets also receiving a boost from decline in sterling currency vs overseas) will have a nice ten year performance chart, and certainly seem like a 'safe home'. Such a fund will invariably not be as safe as you think from a cursory look at its chart. Still, it is safer than being gung-ho and fully in equities with that £100k, which is what you're currently doing, so I would endorse the move.

But while I think £100k in CGT is better than £100k in equities if you're looking to avoid equity risk, I wouldn't actually put the whole 20%/£100k in CGT.

As others have mentioned, there are a number of other 'wealth preservation' investment trusts available, some more cautious than others. Putting your eggs in one basket is unnecessary, even though it is nice to have fewer holdings to look at in your collection. You could for example do £50k in Capital Gearing Trust, £50k in Personal Assets Trust, and £50k in RIT Capital Partners. I realise that's 30% not 20%, but RIT is typically less conservative while still having an eye on preserving capital given a low growth outlook for some markets going forward. As you have hundreds of thousands allocated to equities already you can probably spare more than 100k for your mixed-asset strategy as part of moving to a more 'defensive stance'.

BLB53

I have held this for the past decade and no complaints. It protects capital and is fairly conservative with lots of bonds and property.

Here's an article on the DIY Investor site which may be of interest

http://diyinvestoruk.blogspot.com/2018/06/capital-gearing-full-yr-results.html

The full year results for the past year should be available in the next couple of weeks.

talexuser

I have CGT, PNL, Troy and RCP as the defensive part (gave up on Ruffer a while ago). This is maybe around a quarter of the portfolio with slightly more in Vanguard global trackers, and the rest in good growth/income funds. They are there just for the next crash without harming overall performance too much. Also have some British Empire (soon to be renamed to AVI Global) but not sure if you would count that as 'defensive' as the others.

Moe_The_Bartender

bowlhead99 wrote: »

A few thoughts:

Firstly with the figures you mentioned, you mention only 11% property on 500k, being about 55k - should we assume that is investment, and the whole 500k mentioned is excluding the property you live in? If you don't separately own the property you live in and are just renting, that would be a good use of funds (being tax efficient and a long term store of value).

Based on the percentages, about 410k in equities and presumably that's what you are thinking of swapping into CGT to make 310k equities and 100k CGT. CGT is only 35% in equity and property funds at the moment, with half the rest in index linked bonds and about 30% in other government and corporate bonds and cash.

So, by buying CGT you would not get your overall equities exposure as low as the 'headline' 310k, more like 325-330k+ because CGT does have equities and will hold more equities when it sees better prospects for them; but based on the latest factsheet, equities would be under 70% of your total 500k, while property goes up to around 15% and the rest is filled with bonds and cash.

It sounds like that mix would do a better job of 'hanging on to what I've got' than your current mix where equities are over 80%, though some people would be more conservative and drop their total equities (including the equities held within mixed asset, wealth-preservation type funds) to 60% or below.

Really it depends what your eventual goal is for the 500k that you want to 'hang on to'. Are you drawing it down to supplement your pension income? Or you expect to not need it until between 2039 and 2049 to fund a solid decade of care home costs between age 90 and 100? Or you want to give half of it away to your kids or grandkids in about ten years from now so they can fund some life events, get on the property ladder or improve what they have. People have different ideas about what they have actually saved / invested their money for.

Say you buy CGT for 100k and end up with exposure to about 330k of equities. If there is a hard global equities crash and the value of the equities drops by 50%, that would be a drop of 165k, which is a third of your 500k pot. Are you OK with that? And obviously the property holdings could decline at the same time.

We know there will be big crashes every so often which is presumably what you are trying to avoid too much pain from; the speed of recovery from such a drop is uncertain, and if you were planning on (e.g.) drawing out £thousands one year while asset values are depressed, it would eat relatively more of your pot than if you drew out the £thousands when they were not, and put them into non-equities instead.

An overall asset allocation for an individual, is quite personal and depends on their overall objectives and goals and their appetite for risk. Importantly it also depends on their likely behaviour when faced with paper losses - if your equities were down by £100k+ and everyone was talking about how much worse the markets could get, would you sell out of the rest of them to avoid further losses, making that loss permanent when the market went back up without you? Or would you instead use some of your cash and property to buy more equities and hope to benefit from the recovery? What people say they will do is often quite different to what they would actually do when faced with the harsh reality.

The above comments are really just looking at what a move into CGT would mean for your asset mix rather than what you were perhaps looking for which was just views on CGT generally. You ask: It does have a good record over many years, though you should recognise that bonds went on a 30+ year bull run and have only relatively recently moderated their boom with some slight interest rate increases or unwinding of QE around the world; and global equities have been going up solidly from their low point at the end of the last great crash in March 2009 (more than a decade ago now), with only a few minor blips downwards every few years since then.

So, a fund holding bonds and stocks and property while all those asset classes were boosted by low global interest rates (and non-UK assets also receiving a boost from decline in sterling currency vs overseas) will have a nice ten year performance chart, and certainly seem like a 'safe home'. Such a fund will invariably not be as safe as you think from a cursory look at its chart. Still, it is safer than being gung-ho and fully in equities with that £100k, which is what you're currently doing, so I would endorse the move.

But while I think £100k in CGT is better than £100k in equities if you're looking to avoid equity risk, I wouldn't actually put the whole 20%/£100k in CGT.

As others have mentioned, there are a number of other 'wealth preservation' investment trusts available, some more cautious than others. Putting your eggs in one basket is unnecessary, even though it is nice to have fewer holdings to look at in your collection. You could for example do £50k in Capital Gearing Trust, £50k in Personal Assets Trust, and £50k in RIT Capital Partners. I realise that's 30% not 20%, but RIT is typically less conservative while still having an eye on preserving capital given a low growth outlook for some markets going forward. As you have hundreds of thousands allocated to equities already you can probably spare more than 100k for your mixed-asset strategy as part of moving to a more 'defensive stance'.

Fantastic post, thank you and much food for thought. My property exposure is exclusively in well focused REITs like PHP, BBOX, BYG and so on and does not include my house which is mortgage free.. My kids are loaded and tell me to spend my money and not leave it to them so I only need to make it last as long as I do. My mother and her five sisters lived on average to 96 so if I have inherited their genes, I hope to be around for a long time yet.

I have a good tolerance for risk and am happy to have a good exposure to equities but as I now have enough to live on, there doesn't seem much point in taking unnecessary risks.

I'll dwell on what to do but my initial inclination is to put around 10% each into CGT and PNL. RIT is on a fairly high premium and I see no reason to over pay. I just need to decide what to sell as I can't bear the thought of parting with any of my holdings in LTGE and Fundsmith which are largely responsible for my situation.

seacaitch

Moe_The_Bartender wrote: »

I just need to decide what to sell as I can't bear the thought of parting with any of my holdings in LTGE and Fundsmith which are largely responsible for my situation.

My rule of thumb for Investing is that if it feels easy to do something then it's usually the wrong thing to do, and conversely if it feels hard to do something then it's often the right thing to do.

eg.

Selling equities when markets have tanked, the news is full of doom, and everyone is c@rping themselves, including yourself? Feels easy to sell then, but doing so is usually the wrong thing to do.

Top-slice highly successful investment positions that have performed much better than anticipated and have gone way beyond their target allocation? Feels hard to top-slice then, but....