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Capital Gearing Investment Trust

A picture of some gears: Can Capital Gearing Trust similarly leverage your returns?

Important: What follows is not a recommendation to buy or sell shares in any company. I am just sharing my notes for general interest. Please read my disclaimer.

Long time readers may recall my fascination with investment trusts.

It’s true that index trackers and ETFs have made such trusts redundant for most investors (with the debatable exception of income seekers).

If you want to grow your nest egg with little fuss and the best odds of success, you’re probably best off investing passively and avoiding complications such as:

  • The lack of correlation between a trust’s name and its activities
  • The pick-and-mix approach of many trusts towards benchmarks
  • The risk of a trust still underperforming whatever benchmark you or they deem appropriate
  • Debt, buybacks, and the issuing of stock
  • Their colourful history, which stretches back to the glory days of shipping and railroads, and which sees you able to run your money with the 1% with some trusts like Caledonia and RIT Capital Partners

But for an investing nerd like me, all this is catnip.

Indeed, even if I went heavily passive again1 I’d probably still follow investment trusts.

After all, I read books about hedge funds, despite hedge funds usually2 being about as welcome in my portfolio as Jeremy Corbyn busting out of a cake dressed in lingerie at the annual gathering of the Bullingdon Club.

Spectator sport

I enjoy seeing how hedge funds try to outwit and profit from the market (and from their own clients…)

Similarly, I’m always curious about how investment trusts go about their business, and I’m always looking for tips for my own active investing (as well as occasionally buying into opportunities in trusts, of course).

Indeed even some passive investors might benefit from occasionally seeing what professional fund managers are up to, if only for ideas about asset allocation.

And they don’t get much more interesting than Capital Gearing Trust (Ticker: CGT).

Let me be clear: This article is not a recommendation to invest this trust.

I’m also not saying its strategy – with its market timing, leftfield asset allocation, and general active fiddling – is above reproach.

Capital Gearing’s strategy would be an anathema to my co-blogger The Accumulator, and to many Monevator readers.

However this site isn’t just about splitting your money between a cheap global tracker fund and a bond ETF, rebalancing every Christmas, and coming back in 30 years to tell us how you did (though there’s a lot to be said for it – and a postcard would be nice…)

And I am not one of those who dismiss fund managers’ efforts with a wave of the hand and a blithe “it’s all just luck.”

What I am is someone who says that in the majority of cases any outperformance they achieve is indistinguishable from what might happen through luck, and also that active investing is a zero sum game.

Given the cost of paying for what is probably luck is prohibitive, and seeing as you likely can’t tell the very few who are going to be skillful/lucky in advance, you might as well just invest passively, keep costs low, accept the market’s return, and avoid the whole kerfuffle.

But that’s very different from arguing you should avoid active managers because they’re charlatans or morons.

On the contrary, I believe lots of hard work, goodwill, and brainpower goes into achieving their existentially troubling results.

There’s a reason why so many UK fund managers are Oxbridge graduates, even if that intellectual arms race means they’ve nullified their respective edges to zero – which in turn again implies we might as well invest passively.

(Though as you should know by now, I personally still try my best to beat the market by investing actively. But that’s my problem, not yours!)

You don’t have to like it…

So, yes:

  • You could probably roughly replicate the past returns of the Capital Gearing Trust with some split of equity trackers and bond ETFs.
  • You could make the case that it’d be better for you to do that in the pursuit of future returns, too, rather than buying into the trust.


But let’s now examine what the trust’s manager Peter Spiller actually does that makes it so much more interesting than that.

(Not least because like all active managers, Spiller is acting without the benefit of hindsight – unlike academic exercises in replicating past returns through passives.)

You see, whereas many active funds are closet index trackers, Capital Gearing is most definitely not.

Gosh is in the details

Here’s how Capital Gearing Trust manager Peter Spiller had distributed its roughly £95m in assets as of the end of August 2015:

Capital Gearing Trust's asset allocation as of August 2015.

Capital Gearing Trust’s asset allocation as of August 2015.

Source: Capital Gearing Trust

A few comments on this rather esoteric allocation:

  • Equity-light: The trust benchmarks itself against the FTSE All Share, but there’s barely one-quarter in ordinary shares.
  • Investment trust-heavy: Capital Gearing has bought stakes in dozens of other investment trusts. It aims to buy when they’re discounted and sell when the discount closes, to boost returns. In the last financial year, for example, Capital Gearing’s trust portfolio beat the FTSE All-Share.
  • You can see the investment trusts it holds at the end of its year in the annual report. Even a quick glance will reveal massive diversification.
  • Cash heavy and low duration: Around 45% of net assets are invested in low yielding, short duration assets. Cash, nominal bonds, zero dividend preference shares, and convertible debt securities. Some of these assets may be unfamiliar to you, but the point is nearly half the portfolio is not set to earn much of a return. Capital preservation is the key for now. The manager thinks of such assets as “dry power” to invest in a correction.
  • A big weighting of index-linked government bonds: Again, these aren’t likely to shoot the lights from current valuations. But they could help to compensate for the low weighting of equities if (or rather “when”, in manager Peter Spiller’s mind) inflation takes off again.
  • Little gold: I think it’s interesting that a trust focussed on capital preservation has only 1% in gold. Not because I think it should own more, but because that’s what the doomster consensus has been for years. Clearly we’re dealing with a subtler mind than your average gold bug. (Not you, dear gold bug reader. You’re an above average gold bug.)

All told it’s quite a strange portfolio, not made any more immediately appealing by the paltry dividend yield of less than 1%.

There are other concerns too, that Monevator-trained investing guerrillas will immediately spot, especially related to costs.

Not only is an investor in Capital Gearing paying a fee for Mr Spiller’s talents, his assistants, office equipment, and trading fees.

An investor is also effectively paying twice for the management of that investment trust portfolio, since they obviously all have their own fees, too.

Indeed on some parts of the portfolio I’d imagine total annual costs – that is, Capital Gearing’s fee and running costs added to the underlying trust’s fees and costs – might approach 5% or more.


Disaster not discounted

All these comments probably sound quite negative, so I should be clear I quite admire this trust, the manager, his record, and how he backs his convictions.

I’m also always surprised when I see Capital Gearing’s long-term record.

It highlights that there’s more than one way to skin the investing cat.

This is a trust that is doing something very different compared to so many me-too funds out there, and yet it is delivering over the long-term.

It thus offers a genuine reason for certain investors whose thinking accords with the manager to consider owning it.

That said, investors are typically their own worst enemies, and that’s likely true for some investors here, too.

I am thinking of the shifting discount/premium over the past five years:

Over the five years to September 2015 the discount/premium fell from a 20% peak.

Over the past five years to September 2015 the premium fell from a 20% peak.

Source: AICStats

This graphic (which unfortunately is spat out without dates on the X-axis) shows how the discount/premium fluctuaed from early October 2010 to end of September 2015.

As you can see, the trust typically traded at a big premium to its net assets – as much as a 20% premium back in 2011.

In other words, investors at the peak were prepared to pay 20% in excess of what the trust actually owned to buy its shares – presumably either because they felt that fairly reflected the cost of assembling a similar portfolio for themselves or because they wanted access to Spiller’s expertise in managing that portfolio.

Neither one is a very good reason to pay such a huge premium.

It’s true that it would cost a lot of money to exactly replicate Capital Gearing’s asset allocation as a private investor, assuming that was feasible or desirable.

Yet most of the trust is not invested in otherwise inaccessible asset classes (as might be the case with, say, a private equity or frontier market fund).

As I alluded at the top, I think you could get something similar to the net exposure of its portfolio using a far smaller and more manageable selection of ETFs, with only its convertibles and zero-dividend preference shares being tricky to duplicate.

It wouldn’t perform exactly like Capital Gearing, to be sure.

But it also wouldn’t cost you a 20% tip for the privilege of buying in!

Of course Capital Gearing’s portfolio is a movable feast, and monthly snapshots only give you so much information about how it’s actually allocated.

Which of course brings us to the second point – paying for Mr Spiller’s talents for managing it for you.

I’m not going to duplicate what I’ve already said – or indeed what most of the Monevator website is all about.

Clearly, we don’t believe it’s worth paying 20% as an entry price for the unlikely chance of outperformance.

And before somebody protests as they usually do that “It’s not just about outperformance, there’s also risk and volatility!” please remember you can cheaply dampen volatility by owning fewer equities and more bonds and cash.

What you were really paying for with Capital Gearing’s 20% premium was outperformance (/lower volatility/a better Sharpe Ratio/whatever) in excess of what you could get cheaply via index tracking products and cash.

Crash tested dummies

So while I said earlier there might be a rationale for certain investors to own Capital Gearing Trust’s assets and to employ the manager on their behalf, I don’t think there was a case for paying 20% to do so.

Why did others think it was okay to pay that 20% premium for the trust’s assets?

Well, why do they ever?

Past performance, of course!

Back in 2010 and into 2011 many investors feared the financial crisis had not really ended. (Some still have their doubts.)

Fear still stalked the market. Anyone reading financial blogs at the time will remember how bearish everyone was. Few seemed to believe the rally was real.

I remember when I posted a suggestion back in 2010 that after such a steep bear market shares might rally by double-digit percentages for a decade, it felt almost more contrarian than saying it was a good idea to buy during the crash!

The point is this was the prevailing mood among many investors – particularly the more, err, venerable old men whom I imagine make up Capital Gearing’s shareholder base.

(If you’ve ever been to a company AGM you’ll know spotting any shareholders under 60 is a novelty, but even so I suspect Capital Gearing’s AGMs are full of Victor Mildrew clones rather than the rosy-hued OAPs you see in Saga adverts.)

I heard investors applaud the trust and Mr Spiller on bulletin boards, saying he had the defensive mindset to see them through the all-but-fake rally.

And uppermost in their mind was how well Capital Gearing had survived the bear market, as this graph indicates:

A graphic showing how Capital Gearing's share price held firm during the financial crisis.

Capital Gearing’s share price held steady over 2007 to 2009.

Source: AICStats

No chart is perfect (all can mislead) but essentially this one reflects how Capital Gearing did far better than most rivals in the crash period from mid-2007 to early 2009.

You can see you might have lost 45% of your money in the average trust – but you barely lost a night’s sleep in Capital Gearing.

Surely that was worth paying a 20% premium for?

Well, perhaps if the market had crashed again in 2010 or 2011 it would have been.

But the market didn’t crash, so we don’t know.

Run away! Run away!

What did happen is shares kept rallying – especially international shares such as US and emerging markets – and so some of the people who’d put their money into Capital Gearing began to feel short-changed.

This wasn’t exactly Spiller’s fault – he stuck to his guns, and like all of us asset allocators he has been working with an extremely limited toolset, with interest rates stuck at zero and yields collapsed nearly everywhere.

On the other hand it was Spiller’s fault in that he was bearish, and being bearish meant being wrong between 2010 and into 2015.

The following chart tells the tale:

A graph showing how Capital Gearing has lagged the market recovery.

Capital Gearing’s share price is the red line, it’s net asset value the grey.

Source: AICStats

Other trusts left Capital Gearing behind as it stuck to its safety first return of capital rather than return on capital approach to the market.

Let’s remind ourselves of how this was reflected in the premium over the past five years, by repeating that chart:

Over the five years to September 2015 the discount/premium fell from a 20% peak.

Over the five years to September 2015 the discount/premium fell from a 20% peak.

Source: AICStats

You can see that as Capital Gearing fell behind, investors decided it wasn’t worth over-paying for its intricate portfolio and/or Mr Spiller’s special insights after all.

The premium even dipped into a discount (so you could buy it for less than it was worth in terms of net assets), which accounts for much of the falling share price over recent years (the net assets, the grey line, can be seen holding up better than the value of the fund in the chart I shared just above this one).

Which is all to say the so-called Behaviour Gap swallowed another bunch of victims.

Just another ride on the investor sentiment cycle.

Too clever for their own good

The irony is that as the market rose and shares – especially US shares – started to look somewhat expensive, the justification for owning Capital Gearing (or otherwise de-risking your portfolio) actually rose with it, if you were minded to try to be clever about all this.

That’s because short-term momentum issues aside, owning shares get riskier when the market rises and safer when it falls – because you’re paying correspondingly more or less for the earnings and dividend stream they deliver3.

Yet as these risks increased, the premium on Capital Gearing actually fell.

For me, it’s another illustration that most investors have no business trying to be cute about investing at all.

They should instead just weight their equity/bond allocations according to their risk tolerance, and avoid indulging in recruiting hired guns, chasing the winners of yesteryear, or trying to time the market.

Holding on to your hero

That said, there is another approach to investing with active managers.

You can buy and hold something like Capital Gearing Trust for the very long-term – multiple decades – and bet on it outperforming over the cycles, rather than adding your own (likely flawed) performance chasing into the mix.

And for all my fun above, I’m sure that’s what most of Capital Gearing’s shareholders actually do.

As always the marginal buyer sets the trust’s price. I suspect it was a relatively small number of Johnny-come-lately buyers who’d been freshly acquainted with the risks of owning shares back in 2008 and 2009 who were responsible for most of that crazy premium that developed.

It’s they who were the foolish ones. Long-term holders probably sat pat. Perhaps some even sold on that unsustainable premium and aimed to buy in when it subsided (like now) – though that kind of game has its own clear perils, too.

Most people who want – for whatever reason – exposure to an active fund will probably do best to choose well, invest, and then file and forget.

As you can see in the following chart, buying and holding Capital Gearing for the past 30 years has done very well (although Spiller wasn’t the manager for this entire period, and we should remember all the caveats about survivorship bias and past performance versus future performance and so on):

Chart showing Capital Gearing Trust's long-term returns

Capital Gearing over past 30 years (Click to enlarge)

Source: CG Asset Management Ltd / 2015 Annual Report

Over the past ten years you can see a similar dynamic in play:

A chart showing Capital Gearing Trust's 10-year returns to end of August 2015.

10-year rolling returns to end of August 2015.

Source: Capital Gearing Trust

It’s clear this trust makes its gains by not falling in bear markets, not by doing well in bull markets.

As such, if you’re the sort who dismisses all this talk of passive investing and cheaper alternatives and wants to own this trust then – given that you’re likely not the next undiscovered hedge fund manager able to trade in and out of it at opportune times – you’re probably best off simply buying and holding.

That’s what Mr Spiller does, and he owns £10 million worth of the £100m trust’s shares.

You probably think he’s a better investor than you, if you’re buying into his fund.

If so, then I’d suggest you’re likely best off doing what he does.

Changing gears

A few takeaways to close:

  • You can overpay through fear as well as greed
  • When the average person least feels the need for safer assets is probably when they need them most. We suffer from recency bias, and forget most things are cyclical
  • Don’t buy an investment trust on a 20% premium
  • There’s a lot of weird and wonderful assets out there

Good hunting!

Note: I don’t own any Capital Gearing Trust shares, but someday I might.


  1. I had most of my money in trackers a decade or so ago. []
  2. There are exceptions, at exceptional moments. I may write more on this one day. []
  3. I am ignoring growing earnings here, which offset the growth in asset prices over the long-term. I am also talking about real risk, not academic risk! []

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{ 24 comments… add one }
  • 1 Neverland October 1, 2015, 12:58 pm

    Its pretty expensive for what is mostly a bond fund but they are introducing a discount control mechanism and cutting the annual management fee if the assets go up up 25% ….to a still chunky 0.45% a year plus underlying costs of third party investment trusts

    So I’m guessing that these investment trusts it owns probably have charges of 0.5-1% per annum, so all in your total annual costs are going to be 0.6%-0.9% before you even take into account the costs that aren’t in the charges figure…

    At least it doesn’t have a performance fee that I can see…

    I’m picking up a share price of £33 today and a net asset value at the end of September of £32 so its probably trading a shade above the value of its portfolio

    If this was trading at a discount of 15% to NAV it might be a buy IMHO

    But why pay a premium to net assets (effectively a hefty initial fee) and then pay triple the annual management fee of a portfolio of passive etfs?

    Can we ever know if Mr Spiller is that smart or just lucky?

  • 2 gadgetmind October 1, 2015, 1:11 pm

    I bought a some Personal Assets, RIT and Ruffer IT back in 2011 to sit alongside my wife’s income shares. None of them have shot the lights out, and Ruffer’s perma-bear outlook has been a big drag, but that’s not why they’re there. I didn’t buy CGT due to the premium, but given the unwelcome changes to dividend taxation, it could be a good home for our 25% PCLS come retirment.

  • 3 Neverland October 1, 2015, 1:53 pm


    “given the unwelcome changes to dividend taxation, it could be a good home for our 25% PCLS come retirment”

    Really? Or are you just swapping a tax to the government with another tax to an active fund manager you don’t need

    Paying an excess 0.5% annual management charge for active management is expensive compared to paying 32.5% additional dividend income tax on a *notional* 4% yield which comes out as only 0.13% of annual asset under management

    With RITCP (which I own) the cost is a more extortionate 1% premium over the passive annual management charge but the justification is access to instiutional funds that I wouldn’t otherwise be able to have access to. With Ruffer and this fund its just plain vanilla investments in the fund

  • 4 gadgetmind October 1, 2015, 2:01 pm

    I guess you’re right. Whenever I am forced to give money to the taxman, I heard the sound of distant flushing toilets as they blow it on another bodged scheme. However, is giving it to the guys in pinstripes any better than to those in bowler hats?

    Anyway, it’s a couple of years before I’m 55, so the rules will have changed another 5 times by then.

  • 5 Jon S October 1, 2015, 9:21 pm

    I struggle with ETFs, particularly as an income investor, mainly with finding sufficient data about their holdings, AMCs and yield, particularly yield, so I avoid and invest in ITs an UTs where the data is easily accessible eg Trustnet, HL etc.

    Also the ETF bond funds I’ve found that replicate my funds do not have AMCs that are much different to my fund charges, so why bother?

  • 6 theRhino October 2, 2015, 9:38 am

    @Jon S One reason to choose ETFs over UTs is how you are charged to hold them with your broker, i.e. its a broker specific costs issue. Say with HL outside of an ISA or SIPP you would be charged an additional 0.45% to hold a UT over an ETF, and conversely the ETF would attract a dealing fee that the UT wouldn’t.

  • 7 Passive Investor October 2, 2015, 11:32 am

    @ Jon S I don’t follow your comment about ETF’s and the lack of information about holdings. AMCs and yield. It is all there on the iShares and Vanguard websites. I use a mixture of ETFs and mutual funds – as theRhino says there can be significant differences in brokerage charges. I don’t see the dangers in ETFs that some do, though I stick to ‘boring’ broad-based index funds which are non geared, have reporting status, high liquidity and are full replicated (ie no third party risk). The final risk to avoid is that in severe short-term market downturns when there is insufficient liquidity ETF prices can stop tracking the value of the underlying assets. This happened last month in the US.

  • 8 magneto October 2, 2015, 12:19 pm

    Thanks for the intro to an IT which had not registered previously on the radar of this investor. We had been in similar IT ‘PNL’ (Personal Assets Trust) for some years.

    “You can see you might have lost 45% of your money in the average trust – but you barely lost a night’s sleep in Capital Gearing.”

    That raises an interesting question. Do we like volatility?
    Personally love it. The more an asset rises and falls the greater the opportunities presented for rebalancing and harvesting capital gains.

    This is why we dumped PNL. If holding a large proportion of bonds and cash is necessary as a defensive measure, we figured we could do that for ourselves, then load up on the more volatile ITs for the stock portion of the portfolio.

    In a similar vein re recent discussions about how much to allocate to UK stocks versus International stocks; the global weighting for UK would be about 8%, while the optimum to seek out currency volatility rebalancing opportunities would maybe be 50% (near the APCIMS suggested figure)?
    So perhaps in retirement where high volatility could be too much of a good thing, then a compromise at about 30% might suit?

    What was fascinating about the article was the chosen asset allocations and how they might change over the years of varying market conditions.

    For the record we hold a mix of broad market tracking ETFs and ITs, the ITs slightly tilting to yield.


  • 9 tom October 2, 2015, 12:23 pm

    Definitely one of the more interesting ITs out there – my main concern is how long Spiller will go on managing for (he’s in his mid-60s) and how to gauge the skills of Alistair Laing, his successor apparent.

    People grumbling about the IT management costs that the trust holds miss a key point – many of them are bought to profit from the discount narrowing.

    I would suggest that there are 2 different ways of expressing the fact you don’t know what’s going to happen in the future:
    1: buy trackers dogmatically.
    2: diversify: own trackers/equity funds and hedge with investments like CGT.

  • 10 Neverland October 2, 2015, 1:33 pm

    @ tom

    Your argument falls at the first hurdle in this case as Capital Gearing trades at a premium to net assets…

    Diversifying into high charging funds is just a route to low performance through paying excessive fees to city parasites

    Also, I could diversify by buying lottery tickets but I don’t think my investment returns would go up because they generate a lousy return

    Buying investment trusts with higher charges only really pays off when the discount to net assets is 15% plus

  • 11 The Investor October 2, 2015, 2:32 pm

    Buying investment trusts with higher charges only really pays off when the discount to net assets is 15% plus

    Or if the manager/trust significant outperforms, of course, as Capital Gearing has done in spades over the past 30 years. 🙂

    I would pay higher charges all day long if I knew an active fund was going to continue to outperform by a sufficient margin to cover my higher costs.

    But of course we don’t.

    That’s the rub! 🙂

  • 12 Neverland October 2, 2015, 3:12 pm


    I don’t have a problem in paying for active investing if its cheap enough to be likely to achieve a better return for investors..but it isn’t

    Lets take Alliance Trust since its in the news and I know it pretty well

    Alliance Trust kinda/sorta tracks the MSCI All World index

    Vanguard has an ETF with an ongoing charge under the official definition of 0.25%

    The chief executive of Alliance Trust was paid £1.3m in 2014 down from £1.4m in 2013; Alliance Trust has about a £3 billion portfolio

    So the chief executive of Alliance Trust, forget the rest of the board and all the other employees of Alliance Trust, costs 0.43% of net assets per year

    I could have just as equally quoted performance fees on a lot of new trusts…I thought thats what the regular charges and salaries were for?

    Just an extreme example of the disease high charges across investment trusts

  • 13 Jon S October 2, 2015, 3:20 pm

    @theRhino 6

    Thanks for that. I only hold UTs if there is no alternative that can match their performance and as I said I’m an INCOME investor whilst many here are GROWTH. Well aware of HL charging system so mainly hold ITs. I suppose it’s down to personal preferences and objectives mainly.

    @Passive Investor 7

    Vanguard UK has 13 ETFs and iShares has 220 (AFAIK) and to access yield date in Vanguard you need to open each factsheet one by one (unless I’m missing something), so that’s probably why I didn’t pursue ETFs much further. I’ve spotted in iShares under the Characteristics tab you can sort by yield and then you have to tab to overview to see AMC so this is useful up to a point so thanks for that info. Still not as easy as Trustnet for IT sorting and selecting though. I’m also a bit sceptical about ETFs due to the lack of extended period performance data.

    As I said above we make investment decisions for our own reasons and needs, there is no one perfect product; if you like ETFs great, I like ITs and a few UTs.

    Finally, it’s easy to criticise HL re % fees and I would counter that by saying they have, due to their buying power, given individual investors access to corporate level UT classes with significantly reduced AMCs eg Royal London Sterling Extra Yield Bond Class B AMC via HL 0.85% or again via HL Class Y (minimum investment £150m, accessible to retail investors via HL) AMC 0.42% this saving virtually covers all of the HL annual charges.

  • 14 James October 2, 2015, 3:55 pm

    @ – Neverland

    “The chief executive of Alliance Trust was paid £1.3m in 2014 down from £1.4m in 2013; Alliance Trust has about a £3 billion portfolio

    So the chief executive of Alliance Trust, forget the rest of the board and all the other employees of Alliance Trust, costs 0.43% of net assets per year”

    I think you have a decimal point in the wrong place – 1.3m/3bn = 0.00043, or 0.043%. Which is still arguably rather high in the days when you can find tracker funds which charge 0.07%, but not as outrageous as 0.43% would be.

  • 15 theRhino October 2, 2015, 4:18 pm

    I think for a short time HL attempted to charge the 0.45% on ITs when it had its big RDR restructure, but backed down pretty quickly if I remember rightly

  • 16 theRhino October 2, 2015, 4:26 pm

    @Jon S with regard to fees – for sure you pays your money and you takes your choices, you only have to look at the behemouth broker table here to see that one size definitely does not fit all.. I’ve still got a SIPP with HL

  • 17 The Investor October 2, 2015, 4:39 pm

    Hi Neverland

    I don’t have a problem in paying for active investing if its cheap enough to be likely to achieve a better return for investors..but it isn’t.

    Don’t disagree, and I say as much in the article. 🙂 Just correcting your incorrect statement.

    There’s a reason *why* people buy active funds, even if most of them *shouldn’t*.

  • 18 Jon S October 2, 2015, 4:58 pm

    @theRhino 14 That’s correct, they sent out an A5 brochure with about 20 pages of the smallest font possible detailing the “new” charges then backed off as there was a revolt by the clients.

  • 19 Jon S October 2, 2015, 5:01 pm

    @theRhino sorry 15 not 14.

  • 20 John B October 2, 2015, 10:55 pm

    Are you more exposed to fraud/miss-management with an IT than a UT/OEIC/ETF?

    If I invest in a Vanguard ETF through HL, I think both hold my money/underlying shares in escrow accounts, so if either company goes bust, their creditors have no call on my assets (obviously they could just steal my money, but I presume that’s far less likely than going out of business)

    For an IT, aren’t you investing in the company, so where do you stand in the creditor pecking order if they get into trouble?

  • 21 Hariseldon October 3, 2015, 9:37 am

    @John B. Having done very well with investment trusts over the years and now being largely in ETF’s the concentration of risk in one investment type and a small pool of managers (that meet my criteria) is encouraging me to to reinvest unspent income in Investment Trusts so as to provide diversity and reduce risk. (A very unlikely event but with severe consequences if one of the major ETF providers had a problem )

    In addition some IT’s are distinctive in their outlook, which is a further attraction as diversification.

  • 22 tom October 3, 2015, 3:13 pm


    Sorry if I wasn’t clear enough – I was referring to the ITs that CGT holds, not CGT itself.

    Their suspicion of equity prices at present mean that many of the ITs they own they buy because they are at very high discounts, and they see the potential for that discount to narrow. So the charges of the underlying ITs become less relevant.

    Certainly you wouldn’t have wanted to buy CGT a few years ago when the premium was c.18%. But now that they have initiated a Discount Control Mechanism (DCM), I wouldn’t have a problem paying a 1% premium for an IT that I intended to hold for 10 years+, particularly when I know the discount/premium will only move 1% either way because of the DCM.

    Of course, that is because I believe in the manager’s talents in future – it’s not the right thing for everybody.

    But if you believe a manager can keep grinding out a decent performance, and intend to hold for the long-term, then a premium is a one-off charge.

  • 23 The Investor October 5, 2015, 12:32 am

    @tom — There’s no free lunch here re: the discounts. If we knew they would close then (generalizing) they would not exist in most cases. (As you say, it’s a ‘suspicion’ that they will, and that they will do so in such a way that is profitable versus, say, holding an index tracker or a risk-free asset or whatever your equation of choice is).

    You pay CGT’s fees for Spiller’s skill in selecting ITs with discounts that in general (we hope) will profitably narrow, among other things. And then you pay the underlying fees of those ITs. You pay twice, irrelevant of the presence of the discount on those ITs. If they close profitably then that’s part of the return that comes from holding CGT itself versus the market (you could after all just buy the ITs yourself and wait for the discount to close).

    Not saying this does or doesn’t make CGT a good investment (heck, I had my 3,000 words to discuss all that. 🙂 ) Just clarifying the logic here. 🙂

  • 24 john June 26, 2017, 9:52 am

    I’d love to see a review of this. The premium has indeed fallen to c.1%, and the 0.5% divi yld is very attractive now that the divi tax laws have changed. Unlike neverland, I’d much rather pay 0.5% excess fee than 38.2% divi tax on a 4% yield.

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