Capital Gearing Trust plc Annual General Meeting July 2018 For - PowerPoint PPT Presentation

Capital Gearing Trust plc Annual General Meeting July 2018 For Professional Investors Only

2018 was the 36 th anniversary since Peter Spiller started managing CGT Capital Gearing Trust Capital Gearing Trust – NAV Total Return History (Rebased) Apr 1982 to Jun 2018 16,000 14,000 CGT 12,000 15% CAGR 10,000 8,000 6,000 MSCI UK 4,000 11% CAGR 2,000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CGT TR 45% 49% 29% 35% 47% 3% 30% 2% 19% 18% 30% 18% 5% 20% 13% 17% 4% 10% 11% 10% 3% 22% 15% 15% 5% 7% 0% 18% 8% 10% 11% (2)% 5% 3% 13% 0% Source: Morningstar 2

Capital Capital Gearing Trust has the dual objective of preserving Gearing Trust shareholders real wealth and to achieve absolute returns Capital Gearing Trust – NAV Performance Since 2000 500 400 Update 300 200 100 0 Capital Gearing NAV MSCI UK UK RPI Source: Morningstar 3

Fund Reporting

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 5

1 Equity Disciplined investment in the closed ended fund universe offers Alpha opportunities for alpha, however discounts today are very narrow CGT – Risk Asset Only – Three Year Returns (%) CGT – Risk Asset Only – Returns and Risk 60% 60.0 CGT Risk Assets 50% 50.0 40.0 40% 3 Year Total Return Investment Trust Index 30.0 MSCI All Share 30% 20.0 20% 10.0 10% 0.0 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 0% -10.0 1.5 2.0 2.5 3.0 3.5 CGT Risk Assets MSCI UK All Cap 3 Year Standard Deviation Investment Trust Index -20.0 Source: Bloomberg Portfolio Analytics Risk Assets include funds invested in equities, property, infrastructure, private equity, hedge funds and loans. 6

1 Equity Disciplined investment in the closed ended fund universe offers Alpha opportunities for alpha, however discounts today are very narrow Investment Trust Discounts – 2005 to 2018 15 10 Premium(+) / Discount (-) % 5 0 -5 -10 -15 -20 -25 -30 Q4 05 Q2 06 Q4 06 Q2 07 Q4 07 Q2 08 Q4 08 Q2 09 Q4 09 Q2 10 Q3 10 Q2 11 Q3 11 Q2 12 Q3 12 Q2 13 Q3 13 Q1 14 Q3 14 Q1 15 Q3 15 Q4 15 Q3 16 Q4 16 Q3 17 Q4 17 Equity Funds Alternative Funds Source: Numis 7

1 Equity How liquid are the risk assets compared to their history? Alpha % Of Risk Assets Capable Of Liquidation In 1 Day Based on 10% Market Participation 40% 30% 20% 10% 0% 2014 2015 2016 2017 2018 Source: CG Asset Management Analysis and Estimates. Based on 8

2 Asset With prospective returns low, duration is short, waiting for more Allocation attractive opportunities to present themselves CGT Asset Allocation – June 2018 – By Asset Class CGT 12 Month Asset Class Return – to June 2018 100% Cash & T- Cash & T-Bills 0% Bills Conventional Conventional Bonds 3% 80% Summary 12M Return Bonds CGT 3% Index Linked UK MSCI All Cap 8% 0% Bonds 60% Index Linked UK RPI 3% Bonds Gold -1% 40% Gold Alternatives 3% Alternatives Property Property 14% 20% Equities Equities 7% 0% Source: CG Asset Management Analysis and Estimates, Northern Trust, Bloomberg Portfolio Analytics, Morningstar 9

2 Asset Over the last three year the defensive asset allocation has lowered Allocation returns but also significantly lowered risk CGT 3 year total return (Jun 2015 = 100) CGT 3 year total return & Max Drawdown 35% 140 MSCI UK 30% 130 25% CGT 120 3 Year Total Return 20% 110 15% 100 UK Gilt Index 10% 90 5% 80 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 0% 2.0% 4.0% 6.0% 8.0% 10.0% Capital Gearing NAV MSCI UK UK RPI 3 Year Maximum Drawdown Source: Bloomberg, Northern Trust, Morningstar 10

Asset Strongest returns were generated by property holdings, and the Allocation weakest by disappointing special situation investment trusts Largest Positions -12 Months to Jun 2018 Contributors and Detractors – 12m to Jun 2018 Asset Return Av Cont ’ Asset Return Av Cont ’ Weight Weight Equities % % % Top Contributors % % % North Atlantic Smallers 12 2.8 0.3 Vonovia 22 2.8 0.6 Vanguard FTSE Japan 9 2.8 0.2 Deutsche Wohnen 27 1.9 0.5 Vonovia 22 2.8 0.6 Unite Group 37 1.1 0.4 Deutsche Wohnen 27 1.9 0.5 North Atlantic Smallers 12 2.8 0.3 Residential Secured Income -3 1.8 0.0 Segro 27 0.5 0.2 Bonds LEG Immobilien 18 0.9 0.2 UK Index Linked 2019 0 6.6 0.0 US TIPS 2026 0 4.4 0.0 Largest Detractors US TIPS 2025 0 3.9 0.0 Ground Rents Income Fund -18 1.1 -0.2 UK Index Linked 2025 0 2.3 0.0 EPE Special Opportunities -50 0.3 -0.2 Swedish Index Linked 2022 -5 1.9 -0.1 Swedish Index Linked 22 -5 1.9 -0.1 Zeros/Credit Candover -17 0.3 -0.1 NB Private Equity Zero 5 1.7 0.1 US TIPS 2020 -0.4 1.1 0.0 JZ Capital Partners Zero 5 1.2 0.1 Residential Secure Income -3 1.8 0.0 Source: CG Asset Management Analysis and Estimates, Northern Trust, Bloomberg 11

Macro Outlook

Asset CGAM’s asset allocation is built on two simple principles Allocation Asset returns mean revert over a long horizon therefore Market timing is possible over a long horizon 13

Return Valuations today suggest prospective returns will be modest Prospects and risk is elevated 10 Year Index Linked Bond Yields – 1982 to 2018 S&P 10 Year Return Model – 1982 to 2018 18% 6.0% 16% 5.0% 14% 12% 4.0% 10% 3.0% 8% 6% 2.0% 4% 1.0% 2% 0.0% 0% -2% -1.0% US Real Yield UK Real Yield Implied Dividend + Earnings Growth + Valuation Change -4% Source: CG Asset Management Analysis, Shiller CAPE, Bloomberg 14

Global The key feature of recent years has been dramatic build of debt, Debt which has continued since the financial crisis Global Non-financial Debt Stock vs. Global GDP ($ tn) 180 160 140 120 USD Trillion 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP Debt Source: BIS, CGAM Analysis 15

Global Unemployment is low, global growth is strong and there are signs Economy that wages are starting to pick-up Unemployment Rate – US, UK & Germany (%) Real GDP Growth – World (%) 14 6.0 12 5.0 10 Unemployment Rate (%) 4.0 Annual Real GDP Growth (%) 8 3.0 6 2.0 4 Forecast for 2018 of 3.7% 2 1.0 in line with average since 1992 of 3.6% 0 0.0 1992 1993 1995 1997 1998 2000 2002 2003 2005 2007 2008 2010 2012 2013 2015 2017 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018f Germany UK US -1.0 Source: Bloomberg (LHS), IMF (RHS) 16

Monetary Yet globally interest rates are at emergency levels and monetary Policy policy remains extreme Major Central Bank Balance Sheets – Total Assets (USD bn) CGAM Forecasts 25,000 20,000 15,000 $ bn 10,000 5,000 0 Nov-08 Mar-09 Nov-09 Mar-10 Nov-10 Mar-11 Nov-11 Mar-12 Nov-12 Mar-13 Nov-13 Mar-14 Nov-14 Mar-15 Nov-15 Mar-16 Nov-16 Mar-17 Nov-17 Mar-18 Nov-18 Mar-19 Nov-19 Mar-20 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 PBOC ECB BoJ Fed SNB BoE Source: PBOC, ECB, BOJ, Federal Reserve, SNB, BoE, Bloomberg, CGAM Analysis & Estimates 17

US The New York Fed’s UIG has proved to be a good leading indicator Inflation of inflation and points to a firming inflationary environment US Core CPI vs. FRBNY Underlying Inflation Gauge (Advanced 15 Months) 4.0 3.5 3.0 2.5 2.0 % Chng YOY 1.5 1.0 0.5 0.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -0.5 -1.0 -1.5 Core CPI FRBNY Underlying Inflation Gauge (15 Months Advanced) Source: BLS, New York Fed, CGAM Analysis 18

Today’s situation is reminiscent of the late 1960s in the US with a History combination of full employment and rising fiscal deficits US CPI and U3 Unemployment (%) Federal Budget Balance (% GDP) 8 0.5 7 0.0 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 6 -0.5 5 4 % -1.0 % 3 -1.5 2 -2.0 1 0 -2.5 Jan-60 Jul-60 Jan-61 Jul-61 Jan-62 Jul-62 Jan-63 Jul-63 Jan-64 Jul-64 Jan-65 Jul-65 Jan-66 Jul-66 Jan-67 Jul-67 Jan-68 Jul-68 Jan-69 Jul-69 Jan-70 Jul-70 CPI (YOY) Unemployment -3.0 Source: BLS, US Office of Management & Budget, Federal Reserve Bank of St Louis 19