Emulate the investing approach of a tortoise instead of a hare to mitigate market fluctuations
Meet the Capital Gearing Trust, an investment company that's all about preserving your wealth and protecting against inflation. They've got a mix of bonds, equities, and commodities in their portfolio, aiming for growth with low volatility and no losses over a year. Since 1982, they've delivered an impressive 14% annualized net asset value (NAV) per share, even during crises like the dotcom crash, the global financial crisis, and the Covid pandemic.
Our equity holdings in the investment-trust sector have been key to this success, and we've got our eyes on some promising opportunities. Many investment trusts (ITs) trade at a discount to NAV per share, like buying well-known stocks like BP at 90p in the pound, a 10% discount. However, the discount can either narrow naturally or with a little help from us.
We're all about identifying investment companies trading on attractive discounts where we think the discount will narrow. Here are three examples from our portfolio:
Attractive Discounts
Take a look at the Fidelity Japan Trust (LSE: FJV). This mid-market Japanese equity trust committed to maintaining a single-digit discount. Despite the hype around AI, it's easy to miss that up until last year, 1,034 regulations in Japan still required the use of floppy disks to submit government documents. There's plenty of room for reform to boost conservatively managed Japanese corporates. The Tokyo Stock Exchange is determined to close the gap by obliging companies to improve returns or face public scrutiny. Valuations aren't extreme, like in the US, and the Japanese yen looks exceptionally cheap. These factors should enhance returns for sterling investors.
We think valuations in UK markets look good too. Check out the Finsbury Growth & Income Trust (LSE: FGT), a concentrated portfolio of UK growth equities managed by a long-term success. They've repurchased 30% of their shares over the last two years, which has been a significant boost to shareholder returns, and they're aiming to narrow the discount to less than 5%.
Lastly, HICL Infrastructure (LSE: HICL) is worth a look. This collection of roads, schools, and critical infrastructure assets can deliver reliable and attractive returns, with an edge from predominantly inflation-linked, government-backed contracts lasting for the next 15 years. The opportunity to acquire these assets at a discount to NAV provides an additional margin of safety and potential upside from accelerated disposals. Foreign investors have already been spotting undervalued assets, as seen with the recent takeover of a similar holding in our portfolio, BBGI Infrastructure, by the Canadian pension fund BCI.
In a world with trade wars, an aging workforce, and large defense spending, inflation might be on the rise. Political and economic uncertainty is also delaying business investment, making global equity markets fragile and vulnerable to a correction. However, we believe by sidestepping market excesses, investors can avoid the harshest drawdowns and continue to grow at attractive, low-volatility returns.
We're more about the slow and steady tortoise than the fast hare. So, if you're looking to safeguard and grow your wealth, give us a try!
- Capital Gearing Trust, with a focus on preserving wealth and protection against inflation, leverages investment trusts, such as the Fidelity Japan Trust (LSE: FJV) and Finsbury Growth & Income Trust (LSE: FGT), for growth with low volatility and no losses over a year.
- The Fidelity Japan Trust (LSE: FJV), an equity trust managed to maintain a single-digit discount, presents an attractive opportunity due to conservative Japanese corporates, undervalued market valuations, and a cheap Japanese yen.
- The Finsbury Growth & Income Trust (LSE: FGT), a UK growth equities portfolio, aims to narrow its discount to less than 5% by repurchasing shares and delivering attractive, low-volatility returns.
- HICL Infrastructure (LSE: HICL), boasting roads, schools, and critical infrastructure assets, offers reliable returns with an edge from inflation-linked, government-backed contracts. It provides a margin of safety due to its undervalued assets and potential upside from accelerated disposals.
