Stock Focus: Capital Gearing Trust

Ruth Harris, Investment Research Analyst

• In this article, we discuss Capital Gearing Trust and a defensive approach to investing
• The managers of the trust aim to preserve investors’ capital during periods of market stress
• While the trust has a defensive, lower-risk approach, we analyse the drawbacks

For many investors, the objective is not necessarily maximising returns but preserving purchasing power over time. Following a prolonged period of strong equity market performance, valuations remain elevated while inflation has re-emerged as a concern, as covered in our Leader article, Inflation: Preserving Real Value.

Against this backdrop, Capital Gearing Trust (CGT) may appeal to some investors seeking a more defensive approach to investing. As explained in our Glossary, CGT is an investment trust which aims to preserve and grow shareholders’ real wealth over time. The trust targets returns ahead of inflation while seeking to minimise the impact of market downturns.

Focusing on capital preservation
The managers of the trust aim to protect investors’ capital during periods of market stress and to deliver returns that exceed inflation by at least 2% per annum over the medium term. This emphasis on capital preservation and real returns has made the trust a popular choice among investors with a long-term horizon who are particularly sensitive to short-term losses.



Rather than relying heavily on equities, the portfolio is diversified across several asset classes. The managers organise the trust around three core components: risk assets, inflation-linked bonds, and a managed liquidity reserve. Risk assets include investments in equities, property, and investment trusts, while the liquidity reserve consists primarily of cash and short-dated bonds. The largest allocation currently sits in inflation-linked bonds, reflecting the managers’ continued focus on protecting purchasing power.

Why inflation-linked bonds?
At the end of the latest reporting period in March 2026, inflation-linked bonds accounted for 46% of the portfolio. This included a 25% allocation to US Treasury Inflation-Protected Securities (TIPS) and a 21% allocation to UK index-linked gilts. While both markets offer similar real yields, the managers have expressed a preference for TIPS because US dollar exposure may help protect investors if sterling weakens over time. The portfolio is also positioned in shorter-dated bonds than the broader inflation-linked bond indices, which reduces sensitivity to changes in interest rates while retaining inflation protection.

Seeking opportunities and discounts
The trust’s allocation to risk assets has gradually declined in recent years as the managers have become increasingly cautious on equity market valuations. Within this portion of the portfolio, the team often invests through other investment trusts, seeking opportunities where shares trade at discounts to their underlying net asset value. The managers look for situations where there is a credible catalyst for that discount to narrow, creating an additional source of return alongside the performance of the underlying assets.

Outpacing inflation
The cautious positioning has not prevented the trust from delivering attractive long-term returns. Over the ten years to the end of March 2026, the trust outperformed UK inflation by 1.9% per annum, while over twenty years it exceeded inflation by 2.5% annually. Since 1982, the trust’s net asset value has outpaced inflation in 37 of the last 44 financial years. More recently, results for the twelve months to 31st March 2026 showed a net asset value total return of 5.8%, ahead of CPI inflation of 3.3% over the same period. A narrowing of the discount to net asset value helped boost the share price total return to 6.4%.

Unlike some investment trusts, income is not a primary objective. The trust pays a single annual dividend in July, funded from portfolio revenues, but investors are generally attracted by the trust’s capital preservation characteristics rather than its income potential. The ongoing charge of 0.59% is in line with peers for an actively managed multi-asset strategy and compares favourably with many peers pursuing similar objectives. Furthermore, shareholders in investment trusts can be exposed to changes in the discount or premium at which shares trade relative to net asset value. In order to manage this, CGT operates a discount control mechanism and regularly buys back shares, helping to ensure that the share price remains close to the value of the underlying assets.

Risks to consider
There are still risks to consider. A prolonged equity market rally could leave the trust lagging behind more aggressive portfolios due to its defensive positioning and substantial allocations to bonds and cash-like assets. Falling inflation expectations or rising real yields could also weigh on the performance of inflation-linked bonds, which represent a significant portion of the portfolio.

However, for investors concerned about preserving purchasing power, managing downside risk, and reducing portfolio volatility, CGT may continue to offer an attractive solution. The managers’ long-standing focus on inflation protection, combined with a strong long-term track record and significant personal investment alongside shareholders, could see increased relevance in coming years if inflation fears persist.

For more information, or to discuss your investments, please contact your usual Redmayne Bentley office or executive, or call 0113 243 6941.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of publishing but may have changed at point of reading.