Capital Gearing Trust

[Adamski]

It's my third largest holding. Shocking performance for a wealth preservation trust, down 9.5% over 1 year.

"The Company's primary investment objective is to preserve shareholder's wealth. The Company's secondary investment objective is to grow shareholder's real wealth."

I think partly as interest rates gone up savings accounts rates have improved, so defensive investors have moved cash out of likes of CGT and into cash.

Any other thoughts as to why doing so badly this year?

[Alaric]

Any other thoughts as to why doing so badly this year?

https://www.fidelity.co.uk/factsheet-da ... /portfolio

shows over 60% in bonds. Interest rate rises are not good for the capital values of bonds.

[BullDog]

Any other thoughts as to why doing so badly this year?

https://www.fidelity.co.uk/factsheet-da ... /portfolio

shows over 60% in bonds. Interest rate rises are not good for the capital values of bonds.

"Wealth preservation" might imply that who ever runs the portfolio understands that. I have nothing positive to say about "wealth preservation" investments in general and CGT in particular.

[Dod101]

It's my third largest holding. Shocking performance for a wealth preservation trust, down 9.5% over 1 year.

"The Company's primary investment objective is to preserve shareholder's wealth. The Company's secondary investment objective is to grow shareholder's real wealth."

I think partly as interest rates gone up savings accounts rates have improved, so defensive investors have moved cash out of likes of CGT and into cash.

Any other thoughts as to why doing so badly this year?

You really need to clarify your thinking here. Investors selling may have an effect on the selling price of the shares which, other things being equal, will increase the discount to NAV. What do you mean by 'down 9.5% over the year. What is down by 9.5% over the year? That number does not seem to appear in the Annual Report.

In any case the Annual Report tells us that the NAV was down 3.6% on the year to 31 March 2023 whilst the share price was down 7.1%, the share price having moved from a modest premium to NAV at the beginning of the year to a modest discount at the year end. Income though was well up as a result of the increased interest rates in the year.

Dod

[Pendrainllwyn]

Agreed. I suspect the OP is referencing the share price which CGT can influence but does not control. Today Google shows the share price as down 9.04%. Maybe the share price was down 9.5% YOY as of yesterday, the day of the OP's post. Nevertheless, CGT's performance hasn't been great of late. I have a holding and will sit tight. It offers comfort alongside my equity exposure.

Pendrainllwyn

[richfool]

Capital Gearing trust, portfolio update as at 30th June 2023:

https://www.investegate.co.uk/announcem ... te/7619414

[richfool]

Capital Gearing Trust portfolio update as at 30th September

(Note holdings include AVI Global recently discussed on another thread)

https://www.investegate.co.uk/announcem ... te/7812710

[richfool]

Capital Gearing Trust portfolio update as at 30th September

(Note holdings include AVI Global recently discussed on another thread)

https://www.investegate.co.uk/announcem ... te/7812710

Further to my post above, a full quarterly report can be found here:

https://www.capitalgearingtrust.com/doc ... 23-report/

[richfool]

The latest factsheet for Capital Gearing trust, as at 31st October, showing relevant holdings:

https://www.capitalgearingtrust.com/doc ... ober-2023/

[Monty]

CGT have announced they are unable to maintain their discount control due to a lack of cash, they've applied to the courts to reallocate capital and this may take around 3 months to get approval. For now the lack of discount control may mean it is an opportunity to buy at a wider than normal discount prior to the buybacks resuming. https://www.theaic.co.uk/aic/news/citywire-news/capital-gearing-blames-court-delays-for-three-month-drop-in-buybacks

ps. RNS shows that buybacks took place on the 7th,8th and 9th so are still occuring.
Monty

[CliffEdge]

CGT have announced they are unable to maintain their discount control due to a lack of cash, they've applied to the courts to reallocate capital and this may take around 3 months to get approval. For now the lack of discount control may mean it is an opportunity to buy at a wider than normal discount prior to the buybacks resuming. https://www.theaic.co.uk/aic/news/citywire-news/capital-gearing-blames-court-delays-for-three-month-drop-in-buybacks

ps. RNS shows that buybacks took place on the 7th,8th and 9th so are still occuring.
Monty

Sounds like a fiddle to me.

[Dod101]

CGT have announced they are unable to maintain their discount control due to a lack of cash, they've applied to the courts to reallocate capital and this may take around 3 months to get approval. For now the lack of discount control may mean it is an opportunity to buy at a wider than normal discount prior to the buybacks resuming. https://www.theaic.co.uk/aic/news/citywire-news/capital-gearing-blames-court-delays-for-three-month-drop-in-buybacks

ps. RNS shows that buybacks took place on the 7th,8th and 9th so are still occuring.
Monty

No. It is helpful if posts are at least accurate. ITs do not run out of cash and if they do they just sell some holdings. What they have run out of are distributable reserves in order to fund share buybacks. The ongoing share buybacks are using what little reserves they have left ( and they are probably a waste of these reserves) Using distributable reserves in this way also removes the ability of ITs to ‘smooth’ dividend payments by augmenting current payments from reserves.

Time it would seem for a radical re assessment of the management I would have thought. There is such a thing as having one manager in position for too long?

Dod

[simoan]

CGT have announced they are unable to maintain their discount control due to a lack of cash, they've applied to the courts to reallocate capital and this may take around 3 months to get approval. For now the lack of discount control may mean it is an opportunity to buy at a wider than normal discount prior to the buybacks resuming. https://www.theaic.co.uk/aic/news/citywire-news/capital-gearing-blames-court-delays-for-three-month-drop-in-buybacks

ps. RNS shows that buybacks took place on the 7th,8th and 9th so are still occuring.
Monty

No. It is helpful if posts are at least accurate. ITs do not run out of cash and if they do they just sell some holdings. What they have run out of are distributable reserves in order to fund share buybacks. The ongoing share buybacks are using what little reserves they have left ( and they are probably a waste of these reserves) Using distributable reserves in this way also removes the ability of ITs to ‘smooth’ dividend payments by augmenting current payments from reserves.

Time it would seem for a radical re assessment of the management I would have thought. There is such a thing as having one manager in position for too long?

Dod

I agree there is a sign of some mismanagement here. It seems it's not only the investment landscape that has left their portfolio badly positioned! Now it seems they are also not able to manage their own cash flow to carry out their own thesis. This discount control seems a a fools errand to me, particularly when you see how many shares they issued when the trust was more in demand. According to my data source there were only around 5m share is issue 5 years ago and today they have over 26m. And now it's fallen out of fashion they are going to buy them all back...

[Monty]

CGT have announced they are unable to maintain their discount control due to a lack of cash, they've applied to the courts to reallocate capital and this may take around 3 months to get approval. For now the lack of discount control may mean it is an opportunity to buy at a wider than normal discount prior to the buybacks resuming. https://www.theaic.co.uk/aic/news/citywire-news/capital-gearing-blames-court-delays-for-three-month-drop-in-buybacks

ps. RNS shows that buybacks took place on the 7th,8th and 9th so are still occuring.
Monty

No. It is helpful if posts are at least accurate. ITs do not run out of cash and if they do they just sell some holdings. What they have run out of are distributable reserves in order to fund share buybacks. The ongoing share buybacks are using what little reserves they have left ( and they are probably a waste of these reserves) Using distributable reserves in this way also removes the ability of ITs to ‘smooth’ dividend payments by augmenting current payments from reserves.

Time it would seem for a radical re assessment of the management I would have thought. There is such a thing as having one manager in position for too long?

Dod

Beats me why you write in such an argumentative way but for me I can't be bothered to contribute on a forum where a know it all disparages those trying to be constructive. Bye bye.

[88V8]

No. It is helpful if posts are at least accurate.

Beats me why you write in such an argumentative way but for me I can't be bothered to contribute on a forum where a know it all disparages those trying to be constructive. Bye bye.

It's beneficial if one can look through the style, to the substance.
If one only reads posts that say what one thinks should be said in the way that one thinks it should be said, one will have a thin time of it.

V8

[Dod101]

No. It is helpful if posts are at least accurate. ITs do not run out of cash and if they do they just sell some holdings. What they have run out of are distributable reserves in order to fund share buybacks. The ongoing share buybacks are using what little reserves they have left ( and they are probably a waste of these reserves) Using distributable reserves in this way also removes the ability of ITs to ‘smooth’ dividend payments by augmenting current payments from reserves.

Time it would seem for a radical re assessment of the management I would have thought. There is such a thing as having one manager in position for too long?

Dod

Beats me why you write in such an argumentative way but for me I can't be bothered to contribute on a forum where a know it all disparages those trying to be constructive. Bye bye.

It sounds as though you may be not be suited for this forum. That is a pity as you might learn something. There are others better qualified than I to put you right but I try to contribute to the forums in a positive and helpful way.

Good luck to you in future investment endeavours.

Dod

[Dod101]

No. It is helpful if posts are at least accurate. ITs do not run out of cash and if they do they just sell some holdings. What they have run out of are distributable reserves in order to fund share buybacks. The ongoing share buybacks are using what little reserves they have left ( and they are probably a waste of these reserves) Using distributable reserves in this way also removes the ability of ITs to ‘smooth’ dividend payments by augmenting current payments from reserves.

Time it would seem for a radical re assessment of the management I would have thought. There is such a thing as having one manager in position for too long?

Dod

I agree there is a sign of some mismanagement here. It seems it's not only the investment landscape that has left their portfolio badly positioned! Now it seems they are also not able to manage their own cash flow to carry out their own thesis. This discount control seems a a fools errand to me, particularly when you see how many shares they issued when the trust was more in demand. According to my data source there were only around 5m share is issue 5 years ago and today they have over 26m. And now it's fallen out of fashion they are going to buy them all back...

I am sure you are as aware as anyone else that discount control mechanisms can add value for continuing shareholders. If a company buys its own shares at anything less than NAV then it automatically will add a modest sum to the NAV per share of ongoing shareholders and if it issues new shares to meet demand for its shares it will usually do so at a modest premium to NAV, again helping theNAV for all shareholders. Far from a fool’s errand then, but, as for all companies, they can only buy back their own shares if they have the distributable reserves to do so and this seems to be where CGT has come unstuck.

Dod

[Monty]

For those interested before I leave, Troy Income & Growth (TIGT.L) are in the same boat and now looking for a merger.

Monty

[simoan]

I agree there is a sign of some mismanagement here. It seems it's not only the investment landscape that has left their portfolio badly positioned! Now it seems they are also not able to manage their own cash flow to carry out their own thesis. This discount control seems a a fools errand to me, particularly when you see how many shares they issued when the trust was more in demand. According to my data source there were only around 5m share is issue 5 years ago and today they have over 26m. And now it's fallen out of fashion they are going to buy them all back...

I am sure you are as aware as anyone else that discount control mechanisms can add value for continuing shareholders. If a company buys its own shares at anything less than NAV then it automatically will add a modest sum to the NAV per share of ongoing shareholders and if it issues new shares to meet demand for its shares it will usually do so at a modest premium to NAV, again helping theNAV for all shareholders. Far from a fool’s errand then, but, as for all companies, they can only buy back their own shares if they have the distributable reserves to do so and this seems to be where CGT has come unstuck.

Dod

Ok, not a fools errand if you are the management of the company and your bonus is based on Earning Per Share growth. Of course, I understand the theory as they will always have issued shares at or above NAV and buy them back below NAV, but at the end of the day this is not the business of the company. If they have genuinely spare cash then it should be returned to shareholders via other means. To massively dilute and then buy back in this way is not the best use of funds IMO, and very few companies make buybacks work in the long run. I can't think of many where it has, can you? Only people profiting from this endeavour is the company's brokers.

[Dod101]

I am sure you are as aware as anyone else that discount control mechanisms can add value for continuing shareholders. If a company buys its own shares at anything less than NAV then it automatically will add a modest sum to the NAV per share of ongoing shareholders and if it issues new shares to meet demand for its shares it will usually do so at a modest premium to NAV, again helping theNAV for all shareholders. Far from a fool’s errand then, but, as for all companies, they can only buy back their own shares if they have the distributable reserves to do so and this seems to be where CGT has come unstuck.

Dod

Ok, not a fools errand if you are the management of the company and your bonus is based on Earning Per Share growth. Of course, I understand the theory as they will always have issued shares at or above NAV and buy them back below NAV, but at the end of the day this is not the business of the company. If they have genuinely spare cash then it should be returned to shareholders via other means. To massively dilute and then buy back in this way is not the best use of funds IMO, and very few companies make buybacks work in the long run. I can't think of many where it has, can you? Only people profiting from this endeavour is the company's brokers.

I am not going to get too involved in this because some ITs (such as PNL) have always made this a policy with no harm to them and there arguments to be made for both a strict DCM and none at all. On balance I think a DCM is a good thing.

Dod