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Capital Gearing reveals ‘satisfactory’ results as trust celebrates 40 years under Peter Spiller’s management

Capital Gearing Trust net asset value is up 5.3%

Capital Gearing reveals ‘satisfactory’ results as trust celebrates 40 years under Peter Spiller’s management – Capital Gearing (CGT) has published its annual results for the year to 31 March 2022. During the period, which saw the trust celebrate 40 years under the management of Peter Spiller, its NAV returned 10.5% while its share price returned 10%.

The manager said this is a very satisfactory performance in what has been a ‘topsy turvy’ market: first very strong, and then significantly weaker as we neared the year end. Whilst the company does not have a formal benchmark, this performance compares with the equity return from the MSCI UK Index of 18.7%, and inflation, as measured by the UK Retail Price Index (RPI), of 9.0% for the same period.

The main driver of performance has been the outperformance of both the equity and the bond portions of the portfolio. The percentage of the portfolio in inflation-related assets has increased over the last year which not only includes government index-linked stocks, but also property and infrastructure exposure, including renewables, with inflation-linked returns.

Towards the end of last year, the manager initiated positions in power and energy plays which performed very well in the first quarter of 2022. To get exposure to some of these asset classes, Capital Gearing has invested in ETFs, alongside direct investments in companies.

The year under review also saw the company become a member of the FTSE 250 index with a market cap of more than £1bn.

Chair’s outlook:

The Company was formed in 1982 when interest rates were high, and potential returns looked very attractive as stockmarket valuations were low and interest rates were falling.  It should come as no surprise to investors to realise that the reverse is now true, with historically low interest rates on the rise, and current stock market valuations making future returns distinctly less attractive.

As our Investment Manager put it in a recent article “prospective returns look lousy for practically everything”.  Investors are facing rising interest rates, substantially higher inflation, overvalued stocks, along with Central Banks “turning off the taps” which have helped keep asset prices up and economies from going into recession.

That said, stockmarket concerns are overshadowed by the atrocities being perpetrated in Ukraine.  Apart from the consequences of attacks on freedom, the economic impacts of the war are being felt throughout the world, with disruption to energy and agricultural supplies and the heightened impact on inflation.

That may sound a very gloomy outlook, but there are always interesting investment ideas and opportunities out there that fit with the Company’s investment strategy.  The Company holds a lot of near-cash investments, like Treasury Bills, which can be deployed if, and when, markets fall to more attractive levels.  Until then, there are inflation-linked assets which will continue to be held to help protect the Company against the worst ravages of inflation. The Company goes into the current year with its risk assets focused on a range of potentially rewarding areas, such as rented accommodation; renewable infrastructure; and energy and materials and commodities plays.

It may not be possible to counteract the current levels of inflation through equity returns in the near term, but I know that CGAM and its team will do its best and will look to beat inflation over a three-to-five-year time horizon. It is certain to be a very challenging year but so too have other years in the past 40 where the Company has weathered well.

CGT : Capital Gearing reveals ‘satisfactory’ results as trust celebrates 40 years under Peter Spiller’s management

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