To mark his 40th anniversary running Capital Gearing Trust (CGT ), Peter Spiller came into Citywire Studios for his second appearance on the Funds Fanatic Show.

In conversation with Gavin Lumsden, the famously bearish fund manager explains how he is waiting for a ‘Volcker moment’, when high inflation causes markets to crash and interest rates are hiked aggressively, leading to a new golden era for investors. 

Paul Volcker, the notoriously hawkish former chair of the US Federal Reserve, raised US interest rates to 20% in 1981 after inflation hit 15% in the previous year. His move crushed inflation to below 3% but caused a deep recession that Spiller says laid the foundation for the 1980s bull market in which he began his career. Public companies – their debts ‘purged’ by high inflation – saw their shares surge from their lows. 

Spiller can’t predict when this turning point will happen but, together with Alastair Laing and Chris Clothier, his senior colleagues at CG Asset Management, has positioned the investment trust in assets offering protection from inflation, including index-linked government bonds, renewable infrastructure funds and a small number of high-quality shares. 

Capital Gearing has established a remarkable record under Spiller. With the preservation of investors’ wealth its top priority, the trust has successfully avoided all the crashes since the former Cazenove partner started running it in 1982. An investor who bought £10,000 CGT shares then and reinvested all its dividends would have around £2.8m today, a total return that’s way ahead of the UK stock market.

In the interview Spiller explains:

• why the US S&P 500 stock market index is a long way from fair value despite having slumped 20% into an official ‘bear’ market at points recently;
• how ‘breakeven’ rates on index-linked bonds (and US Treasury Inflation-Protected Securities, or ‘Tips’) show the expected inflation rate over the life of a bond and offer an insurance premium in case that rate is too low;
• why even index-linked bonds can suffer a bit in the short term as inflation rises;
• his criticism of ‘green’ investors for acting like Pontius Pilate in washing their hands of oil companies even though we need such companies in the transition to clean energy;
• and reveals he has opened a new position in an investment trust as share price discounts widen in the closed-end fund sector.