- Wealth preserver delivers 10.5% return
- TIPS and REITs shine
- Trust is defensively positioned for uncertain outlook
Wealth preservation specialist Capital Gearing Trust (CGT) delivered a net asset value (NAV) total return of 10.5% for a slightly shortened year to 31 March 2022 following a change in year-end from 5 April.
This was ahead of inflation of 9% for the same period as measured by the UK Retail Price Index (RPI) as the portfolio benefited from exposure to inflation-linked shares and bonds.
The indefatigable Peter Spiller, who has now managed the capital preservation specialist for over four decades, believes inflation is ‘likely to remain more sticky than the market is currently forecasting in the year ahead’.
If so, he argues US Treasury Inflation Protected Securities (TIPS) ‘and our other inflation-linked bond holdings, are well placed to significantly outperform conventional bonds for another year’.
INFLATION BUSTER
During a year which included a notable inflation shock, Capital Gearing benefited from its extensive exposure to inflation-linked equities and bonds. Its bond portfolio delivered 8% with the fund’s holding in TIPS delivering the stand-out performance.
Elsewhere, Secure Income REIT (SIR:AIM), GCP Student Living and Tritax Big Box REIT (BBOX) each delivered what Spiller described as ‘tech like’ returns in excess of 30%, which he believes was ‘truly extraordinary’ for such low-risk assets.
The percentage of Capital Gearing’s portfolio invested in inflation-related assets has increased over the last year and 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, Capital Gearing also 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 exchange-traded funds (ETFs) alongside direct investments in companies.
‘Our main objective is to keep shareholders’ capital whole during this period of repression, which with luck will end with an environment similar to 1982,’ commented Spiller and his fellow fund managers Alastair Laing and Christopher Clothier.
‘That is to say, inflation and interest rates high but falling, p/e ratios low and rising and debt no longer alarming. That would be a great environment from which to deliver the types of returns that shareholders of Capital Gearing Trust have enjoyed over the last 40 years.’
ANALYST VIEWS
Stifel said Capital Gearing 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.’
‘Capital Gearing has a defensive approach, with a focus on preserving capital, and reflecting the outlook it is currently defensively positioned,’ said Numis.
‘That said, the portfolio has a greater allocation to equities than some of its peers, currently 46%, but 29% of this is represented by specialist property vehicles or funds investing in alternatives (loans, infrastructure, private equity, hedge funds).
‘We regard the management team highly and the long-term track record is exceptional, as shown below. Significantly, given the length of tenure of Peter Spiller, he has also built a strong team around him with a similar mindset.’
Disclaimer: The editor of this story (Ian Conway) owns shares in Capital Gearing Trust
