Discounted Investment Opportunities with High Growth Potential
Capital Gearing Trust and BH Macro Offer Stable Growth and Discount Opportunities
Investment trusts, such as Capital Gearing Trust and BH Macro, are attracting attention from investors seeking stable growth and potential discount opportunities.
Capital Gearing Trust, an investment company focused on capital preservation, invests in a diversified multi-asset strategy. The trust allocates roughly a third of its portfolio to equities, a third to government and corporate bonds, and a third to index-linked bonds, which may include holdings in other investment trusts to achieve diversification across asset types and sectors. This approach helps reduce volatility and preserve capital while aiming for long-term growth.
To manage risks associated with investing in other investment trusts and using gearing (borrowed money), Capital Gearing Trust employs several risk mitigation techniques. These include diversification, income smoothing, moderate gearing levels, and a focus on capital preservation. By spreading investments across multiple asset classes, it reduces exposure to any single market or sector downturn. Income smoothing provides a buffer to pay dividends and sustain investments during market volatility. Moderate gearing levels help balance risk and return, while the focus on capital preservation makes Capital Gearing Trust suitable for investors with some risk appetite but also emphasizes its diversified and defensive approach.
One of the opportunities Capital Gearing Trust is capitalizing on is the discounted share price of Smithson Investment Trust, which trades at a discount to the NAV per share of about 30%. The trust's recent share buybacks should enhance shareholders' returns and help narrow the discount over time.
BH Macro, a feeder fund into a global macro hedge fund called the Brevan Howard Master Fund, also offers an attractive opportunity. Trading at a 13% discount to NAV, the company has started conducting share buybacks to narrow the discount over time. Since its flotation in 2007, BH Macro has delivered an 8.3% annualized NAV return with excellent risk control. The fund has shown positive returns during the global financial crisis and the Covid-induced bear market.
North Atlantic Smaller Companies Investment Trust, another fund with a closed-ended structure, allows managers to pursue distinctive strategies in less liquid markets. The trust's portfolio includes bonds, equities, and a little gold, and it trades at a discount to NAV of about 30%.
Investing in these trusts offers a source of opportunity and risk, as the variability in the discounts presents potential for gains. However, it is essential to consider the inherent risks and the additional risks that leverage introduces. By investing in other trusts as part of a well-diversified portfolio and combining this with income smoothing and moderate gearing, these trusts manage both the risks associated with investing in multiple trusts and the additional risks that leverage introduces.
- Capital Gearing Trust, along with BH Macro, are investment trusts that attract investors seeking stable growth and potential discount opportunities.
- Capital Gearing Trust invests in a diversified multi-asset strategy, allocating approximately one-third each to equities, government and corporate bonds, and index-linked bonds, which may include other investment trusts.
- BH Macro, a feeder fund into the Brevan Howard Master Fund, trades at a 13% discount to its NAV and has started conducting share buybacks to narrow the discount.
- North Atlantic Smaller Companies Investment Trust, another closed-ended fund, invests in a mix of bonds, equities, and a little gold, and trades at a discount of about 30% to its NAV.
