Gearing and IT's

jscol

In the past year I have acquired 3 ITs in my portfolio.
Bankers, Monks and SMIT.

I'm fairly new to ITs. I do understand the basic concept of gearing and know that OEICs can't do this

When I analyse these 3 on my platform it states that the "gross gearing" for each of these ITs is 98%, 105% and 108% respectively.

Can someone explain what gross gearing actually means? Does it mean that all of these companies have borrowed around 100% of their market capitalisation to invest ? Or does it mean that Monks and SMIT have borrowed 5% and 8% respectively?

Thanks.

bowlhead99

jscol wrote: »

When I analyse these 3 on my platform it states that the "gross gearing" for each of these ITs is 98%, 105% and 108% respectively.

Can someone explain what gross gearing actually means? Does it mean that all of these companies have borrowed around 100% of their market capitalisation to invest ? Or does it mean that Monks and SMIT have borrowed 5% and 8% respectively?

The latter.

The platform has just done a simple calculation of gross investment assets against NAV and found the ratio to be 108% for SMT

If you look at SMT's own factsheet they say 'invested gearing' is 8% at 30 November.

jscol

Thanks. What I don't quite understand then is how can Bankers have a gross gearing of 98%? To me a gearing of less than 100% would imply they are lending money??? Sorry if this a silly question.

bowlhead99

Same methodology, the gross investment portfolio is simply lower than the NAV.

For example SMT has , for every £100 of capital and reserves: £9 of borrowing and £1 of cash so the investment portfolio is £108 and the invested gearing is £8.

Bankers presumably has for every £100 of capital and reserves, only £98 of investment portfolio. So they have no net debt being invested; or perhaps they have some gross debt but more cash than debt.

The Bankers factsheet at November says net gearing 0%, net cash 3%

jscol

Many thanks
Makes sense now.
The concept of 98% gearing had confused me somewhat.

bowlhead99

jscol wrote: »

Many thanks
Makes sense now.
The concept of 98% gearing had confused me somewhat.

A fund themselves with no gearing would never say they are 98% geared.

A data aggregation site comparing investment portfolio to capital and reserves or to market capitalisation might say that, if they also mean that '200% gearing' is gearing your balance sheet up to support investments which are 200% of the amount of capital and reserves that you have.

Alexland

There's a nice video interview with Alex Crooke on how he manages the gearing on Bankers where they currently have a 20 year loan facility at 3.65%:

https://www.youtube.com/watch?v=46UGyMat0yA

It's interesting that they have chosen not to deploy any gearing at current market valuations.

https://www.janushenderson.com/en-gb/investor/market-gps-investment-outlook-2020-overview/

With lower expectations it's marginal if the return would cover the interest so why take the risk?

Alex