How a cautious approach to investing has paid off for Capital Gearing Trust
The Capital Gearing Trust’s strategy focuses on not losing money. It has proved very successful, says Max King

When Peter Spiller took over the management of the Capital Gearing Trust (LSE: CGT) in 1982, it had assets of just £500,000. Now, 39 years on, the fund is valued at £864m and its shares have multiplied 237 times in value, equivalent to a compound annual return of 15%. Under Spiller, the trust has only had one down year, 2013, when it lost 2%. This performance far exceeds that of all stockmarket indices, both in terms of performance and volatility.
Returns have been more pedestrian in recent years. A five-year return of 41% reflects a compound annual return of 7.1%, a little ahead of the FTSE All-Share index, but well behind global markets. This has not prevented the shares from trading at a persistent premium to net asset value (NAV), currently 3%, which has enabled CGT to continue issuing shares. Its management fee of just 0.35% adds to the attraction.
Inflation is a key concern
In recent years, CGT’s managers have been very cautious. They have feared the return of inflation and believed that equity markets are overvalued. The trust’s exposure to “funds and equities” comprises just 42% of the portfolio: this includes 17% in property, 4% in loan funds and 5% in infrastructure funds, and just 17% in pure equities. Index-linked government bonds account for 30% of the portfolio, conventional government bonds 14%, corporate bonds 7%, cash 4% and gold 1%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Concerns over inflation and equities’ valuations are now widespread, so these allocations seem prudent. But exposure to equities and funds is now the highest it has been for ten years and double that of 2011. CGT’s managers have been crying wolf for a long time, but perhaps their time has now come.
“People get what they are not worried about,” says Spiller. In 1965, the focus was on employment, not inflation. Only after 15 inflationary years did the focus switch to rising prices. In the 1960s, US inflation built gradually thanks to “relentless” fiscal expansion and negative real interest rates; it was “aided but not caused by oil prices”. Inflation became the “cancer of modern civilisation”, creating “tremendous social tension”.
The turning point came in 1979. “Subsequent disinflation lasted longer than expected, helped by demographics (notably the fall of the Berlin Wall and opening up of China), globalisation and technology, but those factors are now largely spent, if not reversing. Instead, we have green inflation, structural change, such as Brexit, and the possible pricking of asset bubbles.” The consensus is that inflation will fall, but perhaps not back to target.
A sensible investment
America’s total debt-to-GDP ratio has doubled to 296% since 1980 and higher real interest rates are likely to be needed to control inflation. A recession next year is increasingly likely, but the probable response will be higher fiscal deficits, lower rates and more quantitative easing, causing a ratcheting up of inflation. Eventually, central banks and governments will be forced to clamp down, as they did in 1980. Spiller believes that low asset values will open up another era of investment opportunity.
CGT’s strategy focuses both on making money and, more importantly, on not losing it. The exposure to gold is surprisingly low, but Spiller argues that gold is not undervalued relative to historic inflation. Also “gold behaves very like US Treasury inflation-protected securities (TIPS) and we find it easier to analyse TIPS”. US TIPS are preferred to UK index-linked gilts as they offer better value and Spiller expects sterling to fall. Still, exposure to sterling is 54% of the portfolio. Some might think CGT’s strategy is too cautious. But, as one happy shareholder said, “I trust you to hold my coat while I fish in riskier waters”. On that basis, CGT should have universal appeal.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
Thousands more pay inheritance tax with figures expected to double before decade’s end
Number of deaths triggering inheritance tax rose 13% in a year with more increases predicted as Rachel Reeves’ pension reforms apply from April 2027
-
Should you invest in Microsoft?
Microsoft is set to become the second company in the world to reach a $4 trillion valuation. Is now a good time to invest in Microsoft?
-
Profiting from the potential of private markets has become more affordable
Opinion Alex Davies, founder and CEO of high-net-worth investment service Wealth Club, tells us where he’d put his money
-
Rising FTSE 100 gives Rachel Reeves a win at last
Opinion The FTSE 100 index of leading shares has broken through 9,000 for the first time. That’s not as impressive as it appears, and its future is looking grim.
-
Caledonia Investments tackles its discount
Family-controlled trust Caledonia Investments has launched share buybacks and is proposing a stock split
-
Debt funds finally have their day in the sun – how to invest
Investors can now earn equity-like returns from debt funds and with less risk
-
Investment trust boards are rushing to sell at a discount
Persistent discounts seem to be making investment trust boards too hasty about backing opportunistic offers
-
Unloved alternative trusts are going cheap – should you buy?
Opinion Alternative trusts like infrastructure and real estate funds are trading at huge discounts. Investors should take advantage, says Rupert Hargreaves
-
AGMs: a unique selling point for investment trusts that investors should capitalise on
Opinion Shareholder meetings aren’t just a regulatory requirement – they are a way to communicate with investors
-
Tap into investment trusts to profit from private equity
Opinion The investment companies providing access to unlisted firms’ robust growth are looking cheap, says Max King