Capital Gearing Trust Annual General Meeting July 2019
Company Evolution and Discount Management Programme
CGT Since the adoption of the DCM, CGT has experience significant Growth growth, both organically and via share issuance Capital Gearing Trust AUM 400,000 300,000 200,000 100,000 0 2013 2014 2015 2016 2017 2018 Today Source: CG Asset Management 3
AUM Total funds run by CGAM in this strategy have grown c.4% per Inflows annum since 2013 AUM in Capital Gearing Trust and Capital Gearing Portfolio Fund All funds “closed” CGT DCM operating other funds closed 1,000,000 800,000 600,000 400,000 200,000 0 2013 2014 2015 2016 2017 2018 Today Capital Gearing Trust Capital Gearing Portfolio Source: CG Asset Management; Capital Gearing Portfolio Fund plc is a sub fund of the CG Portfolio fund plc which is an Irish Listed UCITS fund. Capital Gearing Portfolio Fund is merging with the Capital Value sub fund on the 26 th July and is presented as merged 4
DCM We can say with confidence that the DCM has reduced discount Benefits volatility Capital Gearing Trust Discount/Premium History Source: Bloomberg 5
DCM We can say with confidence that the DCM has reduced ongoing costs, Benefits increased liquidity and reduced trading costs Liquidity – Current vs 5 years ago Average Bid Offer Spread - % TER % – Current vs 5 years ago £’000 AD Volumes £600 2.5% 1.5% 2.0% £400 1.0% 1.5% 1.0% 0.5% £200 0.5% 0.0% 0.0% £0 Bid/Offer Spread TER £ Liquidity 2014 2019 2014 2019 2014 2019 Source: CG Asset Management, Bloomberg 6
DCM We can say with confidence that there has been no deterioration in Benefits historic returns due to DCM inflows Capital Gearing Trust vs Capital Gearing Portfolio Fund 30 25 20 15 10 5 0 2016 2017 2018 2019 Capital Gearing Trust Capital Gearing Portfolio Fund Source: CG Asset Management, Bloomberg 7
Fund Returns and Positioning
The Company’s dual objectives are to preserve shareholders’ real CGT wealth and to achieve absolute total return over the longer term Capital Gearing Trust – NAV Total Return History (Rebased) Jan 2000 to May 2019 600 500 400 300 200 100 0 Capital Gearing NAV MSCI UK UK RPI Source: Morningstar 9
Investment There are two key pillars to CG Asset Management’s investment Strategy strategy Long Only Absolute Return 1 2 Equity Alpha Asset Allocation Strategy: Value focused specialist equity investing Multi asset portfolio construction Aim: Superior returns on risk exposure Capital protection Execution: Focus on listed closed ended funds, Broad investment across bond markets ETFs and other collective vehicles Superior Equity Returns Downside Protection 10
1 Risk CGT risk assets has generated acceptable alpha – coupled with low Assets drawdowns – in our risk assets over the past four years CGT – Risk Asset Only – Four Year Returns (%) * CGT – Risk Asset Only – Returns and Risk 80 80% CGT Risk Assets 70 70% 60 60% Investment Trust Index 50 Total Return Since Dec 2014 50% 40 40% 30 30% MSCI UK All Share 20 20% 10 10% 0 0% 2014 2015 2016 2017 2018 4% 8% 12% 16% 20% -10 -10% -20 -20% Max Drawdown Since Dec 2014 CGT Risk Assets Investment Trusts MSCI UK All Share * Starting date of December 2014 is the earliest available date within our analytics engine; Risk assets include funds invested in equities, property, infrastructure, private equity, hedge funds and loans Source: CG Asset Management, Bloomberg Portfolio Analytics 11
2 The bond portfolio – consisting of “dry powder” and US TIPS – has Bonds delivered acceptable gains with very low draw downs CGT – Bonds – Four Year Returns (%) * CGT – Bonds – Returns and Risk 35 35% 30 30% CGT Bonds 25 25% UK Core Total Return Since Dec 2014 Corporate Bonds Gilts 20 20% 15 15% 10% 10 5% 5 0% 0 4% 6% 8% 10% 2014 2015 2016 2017 2018 -5% -5 Max Drawdown Since Dec 2014 CGT Bonds Gilts UK Core Corporate Bonds * Returns since December 2014, earliest available date within our analytics engine Source: CG Asset Management, Bloomberg Portfolio Analytics 12
Portfolio Over the last 4 years* CGT has delivered similar returns than the performance UK equity market with significantly lower drawdowns than Gilts CGT – Four Year Returns (%) * - Dec 2014 = 100 CGT – Returns and Risk 40 40% Capital Gearing 30 MSCI UK All Trust Share 30% Total Returns Since Jan 2015 20 UK Gilts 20% 10 10% 0 0% Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 0% 5% 10% 15% 20% -10% -10 Max Drawdown Since Jan 2015 Capital Gearing Trust Gilts MSCI UK All Share * Returns since December 2014, earliest available date within our analytics engine Source: CG Asset Management, Bloomberg Portfolio Analytics 13
Wealth preservation remains at the heart of everything we do Risk Average monthly drawdowns in months where the MSCI World Index fell (Feb 2006 – Aug 2018) Capital Ruffer Schroder Gearing Absolute MM Newton RIT Capital Alliance Foreign and Scottish Trust Return Diversity Troy Trojan Real Return Partners Trust Colonial Witan MSCI World Mortgage 0% -1% Average Percent Drawdown -2% -3% -4% Source: Marten & Co Research 14
Fund Returns and Positioning
Return Prospective returns for equities and bonds appear poor Forecasts 10 Year Index Linked Bond Real Yields – 1982 to 2019 S&P 10 Year Real Return Model – 1982 to 2019 6.0% 18% 16% 5.0% 14% 4.0% 12% 10% 3.0% 8% 2.0% 6% 4% 1.0% 2% 0.0% 0% 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 -2% -1.0% -4% US Real Yield UK Real Yield Implied Dividend + Earnings Growth + Valuation Change Source: CG Asset Management Analysis, Shiller CAPE, Bloomberg 16
Asset With prospective returns low, duration is short, waiting for more Allocation attractive opportunities to present themselves Capital Gearing Trust – June 2019 – By Asset Class, Risk Category and Asset Duration 100% Cash & Tbills 80% Dry Powder Sub 2 years Credit 60% Index Linked Bonds TIPS 5 to 10 Yrs 40% Gold Alternatives 10 to 20 Yrs Property 20% Risk Assets 20+ Yrs Equities 0% By Asset Class By Risk Category By Duration Source: CG Asset Management Analysis and Estimates, Northern Trust 17
Asset The goal of the current asset allocation is to deliver a modest Allocation real gain with low correlation to the equity market 1 Risk Assets US TIPS Dry Powder 2 3 c. 35% c. 40% c. 25% Exp. 10Y return c. 3% real c. 1% real c. 0% real Equity Beta 0.5 -0.4 0 Overall allocation to equities constrained Best risk adjusted returns in the global Mix of short dated corporate credit, • • • by very poor value on offer in benchmark government bond market, offering a risk preference shares, T -bills and short dated equity markets (e.g. US) free positive real yield in the global reserve index linked bonds currency • Given the high valuations of conventional • Materially GBP denominated and overall equities, focus on identifying opportunities Duration c. 9.0 years duration sub 1 year • that can deliver 3% real medium term returns with relatively low market beta • Additional attraction in portfolio context • Some pockets of illiquidity in the due to low / negative correlation to equity corporate bond/pref holdings where • This desired return profile means a markets returns justify the additional risk current focus on specialist property, infrastructure and value equity markets • Overall USD exposure a consideration in • T o be redeployed into risk assets or (e.g. UK & Japan) portfolio weighting for a GBP absolute longer durations bonds when valuations return strategy are more attractive Source: CG Asset Management 18
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