Capital Gearing Trust PLC GBP · LSE:CGT

Capital Gearing Trust PLC GBP — Capital Gearing Trust — Investor Day (November 2022)

51 slides from Capital Gearing Trust PLC GBP's investor day presentation, Nov 1, 2022

  1. Slide 1: Investor Day

    Investor Day 1 November 2022 Grocers’ Hall

  2. Slide 2: Disclaimer

    CGAM Investor Day 2022 2 Disclaimer This presentation is issued and intended for professional investors and eligible market counterparties only. Performance figures have been calculated by CG Asset Management Ltd based on information provided by Bloomberg, Morningstar and Northern Trust Internationa

  3. Slide 3: Agenda

    CGAM Investor Day 2022 3 CGAM INVESTOR DAY Agenda 1. Life begins at 40 Chris Clothier 10.00 am 2. The Money Illusion Alastair Laing 10.20 am 3. Volcker’s Ghost Peter Spiller 10.40 am 4. Coffee break 11.05 am 5. Keynote speech Janan Ganesh 11.30 am 6. Q&A 12.00 pm 7. Drinks 12.30 pm © CGAM 2022

  4. Slide 4: Life begins at 40

    Life begins at 40 Chris Clothier

  5. Slide 5: Four new team members have joined the team…

    CGAM Investor Day 2022 5 LIFE BEGINS AT 40 Four new team members have joined the team… Emma Moriarty Lisa Bajardi Sindy Somanader © CGAM 2022

  6. Slide 6: …including our Chief Morale Officer

    CGAM Investor Day 2022 6 LIFE BEGINS AT 40 …including our Chief Morale Officer Finn © CGAM 2022

  7. Slide 7: A good start

    CGAM Investor Day 2022 7 LIFE BEGINS AT 40 A good start NAV Total Return History (Rebased) Apr 1982 to Apr 2022 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1992 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

  8. Slide 8: The story by decades

    CGAM Investor Day 2022 8 LIFE BEGINS AT 40 The story by decades 80’s - The Go Go Years 90’s - The Bubble Inflates 00’s - The Bubble Bursts 10’s - The Bubble Inflates Again 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 200

  9. Slide 9: Delivering equity returns without the equity risk

    CGAM Investor Day 2022 9 LIFE BEGINS AT 40 Delivering equity returns without the equity risk Asset Allocation 1982 to 2022 Equity Beta 1990 to 2022 100% Cash 1.0 90% 0.9 80% 0.8 Gold 70% 0.7 60% 0.6 Gov't Bonds 50% 0.5 40% 0.4 Credit / 30% Preference 0.3 Shares 20% 0.2 Funds / 10% Equities 0.1 0% 0.

  10. Slide 10: “We have relied on you to hold our coats…”

    CGAM Investor Day 2022 10 “We have relied on you to hold our coats whilst we fish in riskier waters, safe in the knowledge that we can get our coats back when markets get chilly” EXCERPT FROM A LETTER SENT TO US BY A CAPITAL GEARING TRUST INVESTOR © CGAM 2022

  11. Slide 11: “ESG is the dominant topic amongst investors currently…”

    CGAM Investor Day 2022 11 “ESG is the dominant topic amongst investors currently. With environmental and social aspects particularly widely discussed. Governance has received less emphasis; yet it is vital for the long- term interests of investors and for wider society” PETER SPILLER, WHAT INVESTMEN

  12. Slide 12: Governance matters – a close shave

    CGAM Investor Day 2022 12 LIFE BEGINS AT 40 Governance matters – a close shave CGT’s story might have been a shorter one had The view from Fleet Street directors not rebuffed a hostile approach In one of the more bizarre episodes in its history, conduct of Tom Wilmot and his two sons in the in 1985

  13. Slide 13: Discounts matter – they are a source of risk

    CGAM Investor Day 2022 13 LIFE BEGINS AT 40 Discounts matter – they are a source of risk, a cause of poor liquidity and in most cases need not exist at all Boards today have much greater power than they “Now that is what I call a premium!” - CGT think to solve both discount and liquidity issues shar

  14. Slide 14: “The use of a growing array of derivatives…”

    CGAM Investor Day 2022 14 “The use of a growing array of derivatives … are key factors underpinning the greater resilience of our largest financial institutions” ALAN GREENSPAN, MAY 2005 “The huge size of the derivative market, in particular the rapidly growing Collateralised Debt Obligations and CD

  15. Slide 15: Leverage matters – the best time to gear is when credit is scarce

    CGAM Investor Day 2022 15 LIFE BEGINS AT 40 Leverage matters – the best time to gear is when credit is scarce, not when it is plentiful Capital Gearing Trust, as the name suggests, Capital Gearing Trust – Mortgage Document made use of debt when interest rates were high During the 1980’s CGT had two

  16. Slide 16: A simple aim – to preserve, and over time to grow shareholders’ real wealth

    CGAM Investor Day 2022 16 LIFE BEGINS AT 40 A simple aim – to preserve, and over time to grow shareholders’ real wealth Capital Gearing Trust - NAV Total Return History © CGAM 2022 Source: Morningstar, Bloomberg

  17. Slide 17: Positioning remains defensive with a focus on inflation protection

    CGAM Investor Day 2022 17 LIFE BEGINS AT 40 Positioning remains defensive with a focus on inflation protection CGT Asset Allocation September 2022 (%) Returns by Asset Class (%) 100% Cash & Tbills CGT -1.8 Dry Powder 80% Credit Risk Assets -2.9 60% Index Linked Index Linked Bonds Index Linked Bonds

  18. Slide 18: Both the equity and bond portfolios outperformed their benchmark

    CGAM Investor Day 2022 18 LIFE BEGINS AT 40 Both the equity and bond portfolios outperformed their benchmark, contributing to the stability of returns CGT Risk Assets* Performance to September 2022 (%) CGT Bonds Only* Performance to September 2022 (%) 50 150 130 40 110 30 90 70 20 50 10 30 10 0 2022

  19. Slide 19: The Money Illusion

    The Money Illusion Alastair Laing

  20. Slide 20: It is November 2021 and you are worried about inflation, what do you do?

    CGAM Investor Day 2022 20 THE MONEY ILLUSION It is November 2021 and you are worried about inflation, what do you do? © CGAM 2022

  21. Slide 21: It is November 2021 and you are worried about inflation, what do you do?

    CGAM Investor Day 2022 21 THE MONEY ILLUSION It is November 2021 and you are worried about inflation, what do you do? UK Inflation Linked Bond 2073 – Price (£) 450 400 350 300 250 200 150 100 50 0 Nov 21 Dec 21 Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Oct 22 © CGAM 2022 Source:

  22. Slide 22: There are widespread misconceptions about how inflation impacts asset prices

    CGAM Investor Day 2022 22 There are widespread misconceptions about how inflation impacts asset prices: • Equities are not an inflation hedge… they actually love disinflation • Be very sceptical of real assets claims • Valuation really matters © CGAM 2022

  23. Slide 23: Equities are not an inflation hedge

    CGAM Investor Day 2022 23 THE MONEY ILLUSION Equities are not an inflation hedge Inflation 35363738394041424344454647484950515253545556575859606162636465666768697071727374757677787980818283848586878889909192939495 © CGAM 2022

  24. Slide 24: Equities are not an inflation hedge

    CGAM Investor Day 2022 24 THE MONEY ILLUSION Equities are not an inflation hedge Equities Struggle Equities Perform Inflation 35363738394041424344454647484950515253545556575859606162636465666768697071727374757677787980818283848586878889909192939495 “For a variety of reasons reviewed here, inflation

  25. Slide 25: “Real assets are physical assets that have an intrinsic worth…”

    CGAM Investor Day 2022 25 “Real assets are physical assets that have an intrinsic worth due to their substance and properties. Real assets include precious metals, commodities, real estate, land, equipment, and natural resources”. INVESTOPEDIA © CGAM 2022

  26. Slide 26: CGAM Investor Day 2022

    CGAM Investor Day 2022 © CGAM 2022

  27. Slide 27: Be very skeptical of real asset claims

    CGAM Investor Day 2022 27 THE MONEY ILLUSION Be very skeptical of real asset claims Prime Central London Rent (£/sq ft), 1989 to 2019 80 £70 70 £65 60 50 40 30 20 10 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Prime Central (£/sq ft) © CGAM 2022 Source: Knight F

  28. Slide 28: Be very skeptical of real asset claims

    CGAM Investor Day 2022 28 THE MONEY ILLUSION Be very skeptical of real asset claims Real rent per sq ft evolution (£/sq ft), 1989 to 2019 160 140 120 100 80 60 40 0.4x 20 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Real Prime Office Index © CGAM 2022 Source: Kni

  29. Slide 29: Be very skeptical of real asset claims

    CGAM Investor Day 2022 29 THE MONEY ILLUSION Be very skeptical of real asset claims Real rent per sq ft evolution (£/sq ft), 1989 to 2019 160 140 1.3x 120 100 80 60 40 0.4x 20 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Real Residential Rent Index Real Prime Off

  30. Slide 30: Very few asset classes have consistently performed well during rising inflation

    CGAM Investor Day 2022 30 THE MONEY ILLUSION Very few asset classes have consistently performed well during rising inflation Real Return vs. Inflation 1900-2012 Gold 26% -20% Housing -33% Real Estate -52% Equities -62% Bills -74% Bonds -80% -60% -40% -20% 0% 20% 40% Regression of annual real return

  31. Slide 31: Inflation may be one factor influencing the gold price

    CGAM Investor Day 2022 31 THE MONEY ILLUSION Inflation may be one factor influencing the gold price but other factors are overwhelmingly more important Real gold price – 1950 to 2022 900 $820 800 700 600 500 $566 400 300 200 $150 $100 100 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

  32. Slide 32: Are commodities the answer?

    CGAM Investor Day 2022 32 THE MONEY ILLUSION Are commodities the answer? Bloomberg Energy Spot Index (Base = Jan 2000) 700 600 500 400 300 200 100 0 Dec 1999 Dec 2001 Dec 2003 Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 Dec 2017 Dec 2019 Dec 2021 BB Spot Energy Index © CGAM 2022 Source: Bl

  33. Slide 33: Commodity trading makes most sense if you also own a supertanker!

    CGAM Investor Day 2022 33 THE MONEY ILLUSION Commodity trading makes most sense if you also own a supertanker! Bloomberg Energy Spot vs. Bloomberg Energy Futures Indexes (Base = Jan 2000) 700 600 500 400 300 200 100 0 Dec 1999 Dec 2001 Dec 2003 Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 D

  34. Slide 34: Valuation really matters

    CGAM Investor Day 2022 34 THE MONEY ILLUSION Valuation really matters Developed Government Bond 10 Year Real Yields 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% USA Canada UK Australia 12M Range current © CGAM 2022 Source: Bloomberg

  35. Slide 35: CGAM Investor Day 2022

    CGAM Investor Day 2022 35 © CGAM 2022

  36. Slide 36: What assets are we focusing on at present?

    CGAM Investor Day 2022 36 THE MONEY ILLUSION What assets are we focusing on at present? Real Interest Rates • Recent additions have been made to UK index linked adding to the global portfolio of inflation linked bonds Yen Assets • The Yen is offering exceptional value and Japan could come to be seen

  37. Slide 37: If equities are negatively correlated to inflation is today a buying opportunity?

    CGAM Investor Day 2022 37 THE MONEY ILLUSION If equities are negatively correlated to inflation is today a buying opportunity? Equities Struggle Equities Perform Inflation 35363738394041424344454647484950515253545556575859606162636465666768697071727374757677787980818283848586878889909192939495 © CGA

  38. Slide 38: Volcker’s Ghost

    Volcker’s Ghost Peter Spiller

  39. Slide 39: The current inflationary environment continues to evoke the ghost of Paul Volcker

    CGAM Investor Day 2022 39 VOLCKER’S GHOST The current inflationary environment continues to evoke the ghost of Paul Volcker © CGAM 2022

  40. Slide 40: “It was the biggest inflation and the most sustained inflation…”

    CGAM Investor Day 2022 40 “It was the biggest inflation and the most sustained inflation that the United States ever had.” PAUL VOLCKER © CGAM 2022

  41. Slide 41: Volcker’s tightening programme had two phases

    CGAM Investor Day 2022 41 VOLCKER’S GHOST It is important to remember that Volcker’s tightening programme had two phases Effective Federal Funds Rate, 1976-1981 25 20 Federal Funds Rate (%) 15 10 5 0 1976 1977 1978 1979 1980 1981 © CGAM 2022 Source: Bloomberg

  42. Slide 42: UK inflation is now at 40-year highs, but we may only be in the first act

    CGAM Investor Day 2022 42 VOLCKER’S GHOST UK inflation is now at 40-year highs, but we may only be in the first act UK Retail Price Index, year-on-year change 14 12 10 8 RPI (%) 6 4 2 0 -2 1982 1987 1992 1997 2002 2007 2012 2017 2022 © CGAM 2022 Source: Bloomberg, Office for National Statistics

  43. Slide 43: Inflation and interest rates have been low for the past 30 years

    CGAM Investor Day 2022 43 MACROECONOMIC OUTLOOK Inflation and interest rates have been low for the past 30 years, but we believe that we are now in a new regime, which looks closer to the 1960s Old regime • Demographics ✘ • Globalisation ✘ • Technology ? New regime • Green inflation ✓ • Protectionis

  44. Slide 44: The entire financial system is characterised by high levels of indebtedness

    CGAM Investor Day 2022 44 VOLCKER’S GHOST The entire financial system is characterised by high levels of indebtedness, which will limit the extent of central bank tightening US Non-Financial Debt to GDP Total = 281% 300 250 81% 200 Debt to GDP (%) 150 78% 100 50 122% 0 1976 1980 2015 2019 1947 1949

  45. Slide 45: “What you find is there’s never just one cockroach in the kitchen…”

    CGAM Investor Day 2022 45 “What you find is there’s never just one cockroach in the kitchen when you start looking around.” WARREN BUFFETT © CGAM 2022

  46. Slide 46: Household debt and mortgage rates last this elevated on the eve of the global financial crisis

    CGAM Investor Day 2022 46 VOLCKER’S GHOST The last time household debt and mortgage rates were this elevated was the eve of the global financial crisis UK household debt to GDP versus 2-year fixed mortgage rate 100 7 6 95 5 Mortgage rate (%) Debt to GDP (%) 90 4 3 85 2 80 1 75 0 2005 2006 2007 2008

  47. Slide 47: Corporates have also come out of the pandemic with elevated debt levels

    CGAM Investor Day 2022 47 VOLCKER’S GHOST Corporates have also come out of the pandemic with elevated debt levels US and UK corporate debt to GDP 105 100 95 90 Debt to GDP (%) 85 80 75 70 65 60 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 UK corporate debt US corpo

  48. Slide 48: Persistent easy monetary policy has led to extraordinary leverage

    CGAM Investor Day 2022 48 VOLCKER’S GHOST Persistent easy monetary policy has led to extraordinary leverage within the global financial system Value of global shadow banking assets relative to global GDP (USD trillions) 96 Shadow banks manage more than $63 trillion in assets, a number that has doubl

  49. Slide 49: There is a positive aspect to inflation

    CGAM Investor Day 2022 49 There is a positive aspect to inflation. Current debt levels are likely not sustainable at current interest rates and levels of income. But with enough inflation, debt can resume a more appropriate relationship with asset values and incomes, and the economy will begin to st

  50. Slide 50: With central banks’ hands tied, we expect ‘Volcker 2.0’ but not for some years

    CGAM Investor Day 2022 50 VOLCKER’S GHOST With central banks’ hands tied, we expect ‘Volcker 2.0’ but not for some years © CGAM 2022

  51. Slide 51: Keynote Speaker Janan Ganesh

    Keynote Speaker Janan Ganesh Financial Times Columnist & Associate Editor

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