Tom Aylott, Portfolio Adviser, 29 July 2025:
Gearing is a unique trait of investment trusts that very few open-ended funds are able to make use of. Investment companies have far more flexibility when it comes to utilising this tool, with some trusts, such as Amedeo Air Four Plus, DP Aircraft and Ecofin US Renewables Infrastructure, going as far as to ramp up their gearing to 301%, 198% and 125%, respectively.
Borrowing at these levels can be disconcerting on face value, but James Carthew, head of investment companies research at QuotedData, says it needs to be taken in perspective. There tends to be a strong correlation between gearing and income, with lenders more inclined to provide money when the borrower is producing a healthy amount of revenue.
“Lenders are generally more happy to lend you money if you have predictable amounts of income,” Carthew says. “The more comfortable they are with their security, the more they’re prepared to lend. That’s why a lot of alternative trusts have more gearing, like property. People’s first reaction is to look at gearing and say, ‘oh, that’s terrible’. But then they’ll have an astronomical mortgage on their house. Things like property are easy to borrow against.
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