Capital Gearing Trust

NoviceInvestor1

aroominyork said:

NoviceInvestor1 said:

coastline said:

NoviceInvestor1 said:

The 10 year return on this is worse than you can get risk free, which begs the question whether it's worth the risk or not....

To be fair in 10 years CGT has done it's job preserving cash as it's above CPI and RPI over 10 years. The longer term performance is more than respectable even comparing with the world equity index. 9% annually versus 10% annually for MSCI World Index. All on the chart if you change the tabs.

Chart Tool | Trustnet

Longer term historic performance is irrelevant to an extent, as CGT had a complete change of mandate. It's not going to replicate the returns it offered in the past as it employs a very different investment strategy these days.

Could you please describe the change of mandate and strategy?

Source;

https://www.capitalgearingtrust.com/document/our-history/

"Although its strategy has evolved over the years towards a much more defensive approach than in its early years.....

From early on the trust had two distinctive characteristics that in time.....One was its policy of investing only in a portfolio of other investment trusts......

The second was to amplify the potential returns from this specialist portfolio with an unusual but inspired approach to ‘gearing up’ the balance sheet, using borrowing to deliver even higher returns than those generated by its core investments......

The name of the trust, Capital Gearing, faithfully reflected this strategy of using a variety of types of leverage to boost the returns of its holdings of investment trust shares.....

Over the next 16 years from 1992 to 1998, the trust was able to enjoy quite spectacular returns, averaging 20%-30% per annum in many years.......

Having the tailwind of its unorthodox gearing gave the trust what Spiller describes “an almost unfair advantage” over its peer group........

By the mid-1990s Peter Spiller had already started to adjust the way that the trust’s portfolio was invested, increasing the holding of bonds of all types, including those attractive inflation linked bonds, and reducing the equity market exposure......

"

Etc etc

As such any "since inception" returns include a period during which CGT was an entirely different beast. Not saying those returns don't count, simply that unless they start employing the same mandate they used to then 20%-30% a year over 16 years seems unlikely. 

aroominyork

CGT's strategy of 25+ years ago is irrelevant. Its results over ten years are relevant. Its NAV over the last year is flat. Vanguard VLS40, which I consider a good comparator, is down 7.5%. CGT is struggling with its wealth preservation mandate this year, but its record is good and I expect many people are snapping up the discount on offer.

NoviceInvestor1

aroominyork said:

CGT's strategy of 25+ years ago is irrelevant

You literally asked what it was....i.e.  "Could you please describe the change of mandate and strategy".

masonic

NoviceInvestor1 said:

aroominyork said:

CGT's strategy of 25+ years ago is irrelevant

You literally asked what it was....i.e.  "Could you please describe the change of mandate and strategy".

The conversation seems to have flowed from the post from coastline about the 10 year performance of the fund. It doesn't seem this has been distorted by the prior strategy of the trust, through you do have a point about use of the performance since inception should anyone be tempted into quoting that.

aroominyork

Not just coastline's post about ten year performance. It was NoviceInvestor1 themself who posted "The 10 year return on this is worse than you can get risk free, which begs the question whether it's worth the risk or not....".

coastline

Original post was about the last ten years. Performance has been reasonable given the CGT remit to preserve wealth. It's outperformed both CPI and RPI . Given the UK base rate has been very low I doubt any bank or building society rates have managed 50% in 10 years. The long term performance I mentioned was just a general comment and I understand other posters views.
Not sure about any recent quotes from CGT but MAY 2022 suggests they will be actively increasing equity allocation if the conditions are right. When valuations are low in equities as 1980 then CGT will move. Might not be as aggressive as decades ago but the idea is still there.  

EZ_91bOXQAAp1Zo (1400×1169) (twimg.com)

Listen from 37 minutes in.

Peter Spiller: The bear waiting for the big crash and a bull market (citywire.com)

Bobziz

Preparing for Grandma to turn around, once she's turned back they'll run like hell...

masonic

aroominyork said:

Not just coastline's post about ten year performance. It was NoviceInvestor1 themself who posted "The 10 year return on this is worse than you can get risk free, which begs the question whether it's worth the risk or not....".

Ok, well clearly some misunderstanding there because the annualised return in the 10 years from 2013 to date was 4.2%, and that clearly couldn't have been achieved in cash or bonds over the same period. It also isn't expected to continue delivering ~4% over the coming decade in an environment where interest rates have moved by an order of magnitude, though the case for holding conventional risk-free assets directly is much greater now than it was then.

Edit: I see you have made largely the same point already

NoviceInvestor1

I don't think there's anything wrong with the original statement to be honest.

The following are facts;

• The 10 past year return shareholder return according to Morningstar is 4.23%.

• As of today you can get 4.5% in an FCSC protected fixed 5 year bond according to the internet 

As such the 10 year return is worse than you can get risk free.

People invest for future returns, rather than to buy what has happened in the past - i.e. the past returns can't be bought.

During an incredible bull market where anyone could make money CGT went up by about 4% a year. Now the tides have turned and the market isn't so easy those returns have dropped to 3.47% a year over 3 years and -2.15% over 1 year.

I think someone would have to have their head buried in the sand to not at least entertain the question whether the risk vs reward trade off means CGT is a good place to be as of today when you can get a 4.5% guaranteed fixed bond.

aroominyork

coastline said:

Peter Spiller: The bear waiting for the big crash and a bull market (citywire.com)

There are signs Peter Spiller has misjudged it this time, expecting "markets to crash and interest rates are hiked aggressively, leading to a new golden era for investors." If Citibank's prediction yesterday of 2% inflation by November correctly signals global trends, interest rates might have peaked or be close to peaking and this crash might have passed by. (Might... might...)

A couple of other things:

1. The 4.6% annuallised over ten years which I mentioned was NAV. Share price return (4.2%?) is lower. Partly this is because only in 2015 did CGT introduce its discount control policy, although premium as high as 15% reduced in the run-up to 2015. I do not know if this was a sell-off or if they had flagged the DCP.

2. NoviceInvestor, you keep conflating the past and the future. Others have explained this - I will not do so again.