A capital idea [Members]

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• 1 Algernond December 21, 2023, 4:19 pm

  Nice article. Hadn’t realised about their administrative issues relating to the DCP / share buyback capability.
  I’ve bought significant amounts PNL & RICA over the last half year, taking advantage of the discounts, mainly so I don’t have to think about bond allocation myself (also bought lots of RCP & BHMG for the discounts, but not for the bonds obviously).
  Reason I stayed away from from CGT in the end was too much emphasis on ‘ESG’ on their website (poor reason… I’m sure).
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  Mogul

  2 Time like infinity December 21, 2023, 5:09 pm

  Brought CGT and (to a lesser extent) PNL at what turned out to be near ATHs of just over £50 for former and after a fairly (for me) detailed due diligence for a ~2% holding.

  The fall to just under £45 at the lowest ebb this year should have been no big deal rationally speaking but, OTOH, as I’ve mentioned in comments on other threads, the poor performance (the worst ever in Spiller’s 41 years at the helm) has been more painful in practice than the much larger paper £ and % falls elsewhere in the ISA/SIPP/GIA precisely because CGT was brought as a defensive holding in expectation of troubles ahead in 2022/23.

  I’m holding on to CGT (although I may bed and ISA it, as I hold it in a GIA currently); both for the very solid and persuasive reasons given in the as always superb and entertaining analysis set out by @TI in the piece above (and in the earlier 2015 piece), and also because of the unusually impressive long term record of this particular trust.

  Reflecting on the lessons of the past year here, I now think that the likes of Ruffer, Troy, CGT & PNL are often misunderstood, including by me when I brought in to CGT and PNL. Like RCP, they’re really each an actively managed multi asset vehicle, and not defensive plays per se.

  However one characterises them, it’s a fact that CGT is the single best performing investment trust over the whole 40 year period 1982 through to 2021 with, IIRC, a cumulative total (dividend reinvested) return of ~18,000% (and a price return, adjusted for a share split, of nearly 100 fold over those four decades).

  Spiller might be right or wrong on the future, and he may just have been (albeit very) lucky in the past; but there’s no doubting either his experience or the facts of the overall track record of CGT.

  And, from everything I read in the run up to buying in, he’s also exceptionally highly regarded in the City. Listening to him speaking on investment podcasts and I hear ‘safe pair of hands’ ringing in my mental ears.

  I was especially impressed by his analysis when interviewed of where the real value lay in IT discounts (IIRC he used the North Atlantic Smaller Companies Investment Trust PLC as an example).

  I think that type of expertise is potentially quite important in the current type of investment environment as, for a 0.46% p.a. fee, one can, in effect, sub-contract out some of the IT picking to someone who has perhaps more claim to expertise in this area than anyone else in the UK’s fund management industry.

  Of course, if Spiller retires then I’ll have to promptly reassess the position.
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  Mogul

  3 Time like infinity December 21, 2023, 6:56 pm

  Having just checked out CGT’s website (when doing due diligence I use 3rd party sources, independent of the investment manager); I see that they quote total return performance figures since launch in April 1982 of 230x by December 2021 and 280x by April 2022 (the slightly lower figures I had in mind from when I read into CGT about a year ago were from CityWire’s comment postings IIRC). Watching the presentations just now on CGT’s website reminds me what a careful and deliberate thinker and speaker Spiller is. He is the epitome of the City gent, and I mean that in the very best possible and most complimentary way.
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  Mogul

  4 LondonYank December 21, 2023, 9:08 pm

  I have a huge amount of respect for CGT. At various points, it’s been my single largest holding for our family wealth.

  But, it’s not part of my portfolio today. Why?

  The past year has thrown up bargains of a lifetime in investment trusts and I’ve filled my boots in our tax sheltered accounts, with PE and Infra around 1/3 of our invested assets, hopefully locking in double-digit prospective returns for the next decade plus.

  I’ve always held CGT outside of a tax shelter – a sort of first-port-of-call in a storm when I need the funds. But (when) gilts were offering 4-5% tax-free returns, I just couldn’t see how CGT could beat this on a post-tax basis, once taking into account its OCF and the tax drag from divis and CGT (given we are in the 45% tax bracket).

  So I sold off my CGT holding over the summer, and put it all into nominal gilts and linkers.

  I’m still a huge fan of the vehicle and its philosophy. I imagine I’ll own it again one day (possibly even buying at a premium…!). But for now, it doesn’t have a place in my portfolio.

  FYI – CGAM are having an event on linkers in January. Might be of interest to many of the readers here!
  https://www.cgam-events.com/
• 5 The Investor December 23, 2023, 6:31 pm

  @Algernond — Cheers! Yes, the PNL discount is interesting especially if you’re a ‘passive active’ investor. Given its portfolio, however, I really do struggle even more so than with CGT to justify owning it versus allocating myself.

  Re: ESG, I think CGT is going where the wind is blowing. I have no problem with ESG in general, not surprisingly perhaps, but of course it can get ridiculous. Maynard Paton just wrote an interesting update on City of London Investment Group (CLIG) where the ESG gumpf from the directors seems a bit like fiddling while Rome burns:

  https://maynardpaton.com/2023/12/19/city-of-london-investment-george-karpus-explains-agm-protest-votes-absence-of-new-clients-and-tremendous-opportunities-for-corporate-cash-management/

  @TLI — Thanks for the generous review of my piece and all the extra colour on CGT. Yes we might almost come up with a ‘absolute return loss aversion ratio’, where losses in CGT (or PNL or RICA et al) feel twice as bad as losses on normal equities. 😉 Of course that’s not to say it’s not rational to feel the extra pain here, given that the potential gain was necessarily capped too with all the asset allocation.

  Again though, what could Spiller have done ahead of time? Gone entirely to cash? Maybe but that would have been a terrible move for most of the past 10 years. (It’s the same thing we struggled with on the passive side of Monevator, where we could talk about diversifying and lowering duration in the defensive part of the portfolio with cash and global index-linked etc, but moving to 100% cash ahead would have been very off-strategy for a passive investor and also a money loser for many many years…)

  It’s worth remembering it took one of the very worst UK/US bond market crashes of all-time to bring CGT (and the 60/40…) so low. So I cut some slack. And as I say I’d rather be buying in the aftermath…

  @London Yank — Very interesting perspective. Isn’t it interesting how the same wider scenario can move two experienced investors in different directions re: a particular stock/asset class, even when they have essentially the same take on the asset in question?

  Of course it’s explained here I guess by our risk appetites as we’re pushed back down along the curve. I’m basically moving equity money into CGT and hoping for a bit of extra juice versus straight-up fixed income etc at the risk of higher volatility/uncertainty, whereas from what you’ve written here it seems CGT actually represented a good chunk of your risk budget, and you’re moving into pure FI now the yield is there, for greater certainty but capped returns?

  I suppose the higher yields bring CGT onto that radar for me (versus just buying even more gilts myself) because I think it gives more scope for Spiller and his team to add value, as I allude in the piece.

  Let’s say they can add 20% with their investing scale and skill versus my vanilla asset allocation (totally made up).

  When rates were near-zero, a 20% uplift is still zero. Whereas if I can get 5% on a lower risk defensive allocation today, then perhaps CGT can 6%?

  Obviously I am grotesquely simplifying here but you take my point. In short I think they have much more room to manoeuvre now.

  Thanks for the heads-up re: the seminar. I’m tempted!
• 6 The Investor February 19, 2024, 9:25 am

  Just a note** to say that the CGT discount control policy has regained operational status today after the required court-sanctioned changes to its reserves:

  https://www.londonstockexchange.com/news-article/CGT/update-on-operation-of-the-discount-control-policy/16337747

  Bit slower than I’d hoped but roughly on schedule.

  While the discount has started closing this morning (yay!) the share price is actually below where it sat when the above article was posted (boo!)

  However this is due I’d say not to CGT-specific issues but rather the yield curve doing a mini sell-off again over the period. Year-to-date the yield on the 10-year gilt has moved from 3.5% to over 4% for instance. My usual go-to iShares references points, the longer duration IGLT and INXG are down 5.5% YTD respectively. CGT’s portfolio is I believe shorter duration, but still that’s been a headwind.

  So relatively speaking not a bad way to get your FI exposure for a few months, which is pretty much what I did, adding more in a few dips in Jan/Feb. Hardly headline making trades, but again on a relative and risk-adjusted basis I think worthwhile.

  **Standard reminder that I cannot and do not undertake to provide any updates to articles once published, it will just become increasingly untenable. Members should understand they are ultimately on their own with their investing decisions from the lengthy disclaimers. Still, I do want to pop back and add updates and follow-ons now and then 🙂
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  Mogul

  7 Tom Grlla May 19, 2024, 10:13 am

  I think a fair bit about ‘Qual’ issues (as opposed to ‘Quant’) and one thing that concerns me about CGT is how the firm has grown. As we know from the TV, Succession is hard. Peter Spiller’s record is extraordinary (even if, as he modestly says, 1982 was a good time to start), but then we have Alastair, then Chris, who are both very decent and smart. There was a pause, and suddenly there are a few more people (who so far seem decent) and it’s impossible not to think if things might be a little different if Peter Spiller was in sole charge.

  And possibly a bigger issue is how the AUM has grown across the firm, meaning they can’t take positions in ITs in the way they used to (though I know they believe it doesn’t make much difference). And I find the number of positions is getting a bit out of control.

  I don’t have an answer, and I find it concerning that if even the bright minds at CG AM are struggling, what hope do mere mortals like myself have?

  PNL – agree on general opinion – I think it can be a useful vehicle for investors without much experience, but there comes a point where it’s fairly easy to to replicate.

  RICA – I’ve lost faith here – probably for similar reasons as CGT, but more so (no. of people / AUM). Ruffer & Maxey are undoubtedly very cerebral, but that’s no use if they’re not making their investors money…

  (In haste, so excuse lack of subtlety).
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  Mogul

  8 Delta Hedge May 20, 2024, 12:33 am

  All excellent points @Tom Grlla.

  Now that 3 months have passed from the restoration of the discount control policy in Feb, one would expect any beneficial effect to have taken place by now; and whilst we are definitely off of the 12 month lows (of £43.25), CGT is not exactly flying yet either.

  The question in terms of asset allocation mix for me is: does CGT (or PNL, Ruffer or Troy) offer the same downside protection for an equity heavy portfolio as holding bond funds, and/or a trend following fund, and/or a global macro fund (i.e. BHMG)? 43% of CGT is in linkers (ILGs + TIPS) and 13% in conventional gilts. But one can own those directly or via ETFs. If one wants the tax advantages of gilts outside of an ISA or a SIPP then one has to hold them directly, not indirectly via an IT like CGT. So I’m slightly sceptical that CGT offers a distinct or better form of diversification.

  Also, whilst over the full 42 years in charge Spiller has delivered the goods, and notwithstanding CGT’s unsurpassed record amongst UK ITs since 1982; one can’t help thinking that maybe CGT’s best years are behind it now.

  Just 8% of CGT is in infrastructure & only 18% in other equities. With such modest exposures, maybe this suggests that CGT could struggle to fully capitalise on any further narrowing of discounts on closed end funds? I’m wondering now whether something like AVI Global Trust plc or Migo Opportunities Trust might possibly end up being better in that regard (they each specialise in buying ITs with a view to the discount narrowing).

  On the other hand, I really do respect Spiller’s track record and approach, and on a free standing basis (absent any other considerations) I’d generally be inclined to give him and CGT several more years to see how things pan out.
• 9 The Investor May 20, 2024, 8:57 am

  @Tom — Cheers for thoughts. Just on RICA, you may have noticed that CGT has been buying into it (as per its recent quarterly commentary) so I guess Spiller sees something. It prompted me to take a look, but I couldn’t get excited either. Even more so than with CGT you have to buy a little bit of market timing magic (because RICA’s portfolio is so broadly replicable cheaper) and a bit of esoteric genius (e.g. when it bought and sold BTC a while back). I’m not sure the recent track record demonstrates that, though I do think 2022-24 will be seen in retrospect as particular horriblis annuls for these purported wealth preservers, due to the unprecedented rate rise / bond crash / discount rate hikes so who knows. 🙂