Capital Gearing Trust

eskbanker

NoviceInvestor1 said:

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.

While the bullet points may indeed be facts, they don't support the conclusion drawn in bold, so, as you accept with that last comment, it could/should be restated as:

You can currently obtain a savings account which will pay a higher annual rate between 2023 and 2028 than CGT did return annually between 2013 and 2023.

NoviceInvestor1 said:

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.

Nobody should be buying CGT with an expectation that it'll shoot the lights out, they should only do so if they understand its strategy and if/how that fits with their own objectives....

NoviceInvestor1

eskbanker said:

While the bullet points may indeed be facts, they don't support the conclusion drawn in bold, so, as you accept with that last comment, it could/should be restated as:

You can currently obtain a savings account which will pay a higher annual rate between 2023 and 2028 than CGT did return annually between 2013 and 2023.

I accept this correction, you are absolutely right and have worded it far better.

I'd go on to ask the question in light of above;

Do people think CGT will deliver shareholder returns higher than 4.5% per annum between 2023 and 2028, given it failed to do so between 2013 and 2023? 

This is what I am getting at and think it's a valid consideration. I know no one actually knows the answer to this.....but worth thinking about in my opinion.

Albermarle

NoviceInvestor1 said:

eskbanker said:

While the bullet points may indeed be facts, they don't support the conclusion drawn in bold, so, as you accept with that last comment, it could/should be restated as:

You can currently obtain a savings account which will pay a higher annual rate between 2023 and 2028 than CGT did return annually between 2013 and 2023.

I accept this correction, you are absolutely right and have worded it far better.

I'd go on to ask the question in light of above;

Do people think CGT will deliver shareholder returns higher than 4.5% per annum between 2023 and 2028, given it failed to do so between 2013 and 2023? 

This is what I am getting at and think it's a valid consideration. I know no one actually knows the answer to this.....but worth thinking about in my opinion.

Now it is worded like that , then yes it is a valid consideration and worth thinking about.

In general fixed rate savings account do look a reasonably attractive risk free option at the moment, so probably making the cash savings/investments/inflation balance less clear cut in favour of investments.

Linton

A 5 year 4.5% savings account is not a direct alternative to an investment like CGT.  In particular

Tax: taxation rules are different.  A 4.5% interest rate isn't achievable currently in an ISA.

Flexibility:
 - One cannot easily transfer large holdings in both directions between investment accounts in a tax sheltered environment and a savings account 
 - Early access to money in a fixed term savings account can be expensive.  There are no time restrictions on selling an investment holding.

Objective
 - CGTs state objective is to meet or exceed RPI over time.  Over the past 5 unsettled years with higher inflation than for many years CGT's return exceeded RPI as it has done over any other 5 year period for many years.  A 5 year fixed rate account's objective  is to return the fixed rate independent of inflation.  None currenty available would have matched or exceeded inflation over the past 5 years.  Whether CGT outperforms a fixed rate savings account when inflation is low is irrelevent - that isnt its purpose.

There is a reasonable argument that CGT will perform better now that bond interest rates are much higher higher than in 2013-2022 since it invests mainly in shorter term fixed and index linked bonds.

A 5 year fixed depost serves a different purpose to an investment holding. The former is ideal for the short term where there is a clear end date.  It would be foolish, in my view, to choose an investment with any risk if that short a time frame was important.  The primary purpose of CGT is to preserve wealth in real terms over the medium term, say 5-15 years. CGT state that the holding period should be at least 5 years.

aroominyork

NoviceInvestor1 said:

eskbanker said:

While the bullet points may indeed be facts, they don't support the conclusion drawn in bold, so, as you accept with that last comment, it could/should be restated as:

You can currently obtain a savings account which will pay a higher annual rate between 2023 and 2028 than CGT did return annually between 2013 and 2023.

I accept this correction, you are absolutely right and have worded it far better.

I'd go on to ask the question in light of above;

Do people think CGT will deliver shareholder returns higher than 4.5% per annum between 2023 and 2028, given it failed to do so between 2013 and 2023? 

This is what I am getting at and think it's a valid consideration. I know no one actually knows the answer to this.....but worth thinking about in my opinion.

You are again confusing past with present. You suggest that CGT has not done well - "given it failed to do so between 2013 and 2023". Aside from the fact that its NAV did achieve 4.5%, the point is that CGT achieved its objective "to preserve, and over time to grow shareholder’s real wealth." So rather than linking CGT's past performance to the future economic environment, wouldn't it be more sensible to ask "will CGT continue to achieve its wealth preservation obejctive?". You can then take into accuont the risk-free alternative options.

NoviceInvestor1

aroominyork said:

.....wouldn't it be more sensible to ask "will CGT continue to achieve its wealth preservation obejctive?". 

There's no point as some pedant will point out an issue with that question too.....

masonic

Others have made some quite detailed posts on the subject, so I'll just add something simple:

A bond fund is expected to perform much better from this year onwards than it did over the past decade. That should be a statement of the obvious. It is generally the case that risk premiums are maintained when the risk free rate shifts. A fund like CGT will hold a mixture of assets, bonds being prominent among them, all of which are likely to deliver superior nominal returns going forward into the long term, so the fund itself should be able to do likewise without any clever active management decisions.

aroominyork

NoviceInvestor1 said:

aroominyork said:

.....wouldn't it be more sensible to ask "will CGT continue to achieve its wealth preservation obejctive?". 

There's no point as some pedant will point out an issue with that question too.....

It's not pedantry. It's pointing out that you misunderstand the objective of the trust.