Gearing

[richfool]

I was reading the Investment Trust Insider and came across this article about gearing. It was initially about how Henderson Eurotrust had removed gearing to shield investors from a market correction, but then went on to look at the levels of gearing of other IT's. After reading the article, I had a quick look through my IT holdings to see what their levels of gearing were.

Tim Stevenson, manager of Henderson Eurotrust (HNE), has temporarily removed gearing, or borrowing, as he looks to protect shareholders in the 25-year-old investment trust from a sudden setback in stock markets.

Stevenson, a veteran investor in high quality growth stocks, told his audience he knew how painful it was to be geared into a falling market when borrowings can exacerbate an investment trust’s exposure to share price declines.

http://citywire.co.uk/investment-trust- ... der+Weekly

SHRS - Shires was the highest of my UK G&I's holdings, followed by SLET & TMPL. And MYI was the highest amongst my Global G&I's. Though I can't be sure how up to date those figures are.

[forrado]

I note that another Janus Henderson run trust Lowland (LWI) has recently reduced gearing (from 15% to 7%) on similar concerns of a downturn. Both Henderson Eurotrust and Lowland being in the business of seeking out growth opportunities and, both with two long standing managers who are used to doing it their way. I think they may well be both concerned that with the two trust’s share prices just off their respective 52-week highs, little yield to afford downside protection, and not a lot of slack in the discounts. The share prices of the two trusts are wide open to a de-rating in the event of nosediving markets.

They look at the same charts as I do and for the past 22 months there’s only been one direction. But, when the next shakeout will come is anybody’s guess, all we’ve got to gone on is past experience. And, Tim Stevenson and James Henderson have both been through a few fires during the course of their careers. One of the important knacks of being a successful investment trust fund manager is knowing when to put the risk on the table and when to take it off.

[Hariseldon58]

It’s pretty clear the market will take a major move down but it’s the when....

It’s often said that being early is indistinguishable from being wrong in the Investment game.

The reduction in gearing is prudent nethertheless but I wonder if the only sensible time to gear is when markets are doing very badly, when the outlook appears terrible, but when the market is rising after an extended period, then the gamble has far more downside than upside.