As at the half year to 5 October 2016, Capital Gearing Trust’s net asset value per share was 3,647.0p compared to 3,382.0p as at the last year end on 5 April 2016, an increase of 7.8%. This compares with increases of 15.6% in the MSCI UK and of 17.9% in the sterling MSCI World Index. RPI over the six month period increased by 1.5%. During the half-year, they issued 631,856 new shares at an average premium of 1.5% to net asset value, increasing the number of shares in issue by 19.8%.
Approximately 47% of the fund is invested in overseas assets, many of which enjoyed double digit gains in sterling terms subsequent to 23 June (the day of the Brexit referendum). The government bonds held by the fund were bid up to new levels in the anticipation of future policy easing.
The private equity holdings had a particularly strong run benefiting from robust performance in the underlying assets and a narrowing of discounts across the sector due to a number of high profile bids for investment companies. Private Equity Investor, a profitable but mature holding, was subject to a successful bid approach. Other notable contributors included EPE Special Opportunities, JPEL Private Equity and a briefly held but profitable position in Apax Global Alpha. The specialist investment trusts that focus on UK small capitalisation stocks, which collectively represent around a quarter of the equity holdings, rebounded strongly after a weak post Brexit period. Collectively the investment trust equity holdings delivered double digit returns, a result in excess of broader equity indices e.g. MSCI UK.
The zero dividend preference shares and corporate bond holdings also made modest but welcome progress. The ongoing corporate bond buying programme launched by the Bank of England in the wake of the Brexit vote has dramatically depressed corporate bond yields. This has been helpful for the value of the holdings in the portfolio, however prospects for future gains look very limited. It can only be hoped that the Bank of England will soon retreat from its arbitrary intervention in this market and that the coming debt default cycle will return pricing to more rational levels. Until these changes occur the fund will only hold short dated high quality corporate debt, in the anticipation of significant future opportunity in this market when the credit cycle turns.
CGT : Capital Gearing benefits from private equity exposure