Data as at: 22/02/2024

Gearing

Gearing policy

Gearing is used in relation to specific opportunities or circumstances. The Directors regularly review the Company’s level of gearing including the financial modelling undertaken by the Manager to establish what level of reduction in the Company’s NAV would require to occur in order to cause a breach in the covenants attached to the Company’s loan facility.

Borrowing limits

The Company is permitted to borrow up to 25% of its net assets (measured when new borrowings are incurred). It is intended that this power should be used to leverage the Company’s portfolio in order to enhance returns when and to the extent that it is considered appropriate to do so.

Ways in which investment companies can magnify income and capital returns, but which can also magnify losses.

At its simplest, gearing means borrowing money to buy more assets in the hope the company makes enough profit to pay back the debt and interest and leave something extra for shareholders.

Image
how gearing works table

However, if the investment portfolio doesn’t perform well, gearing can increase losses. The more an investment company gears, the higher the risk.

Investment companies can usually borrow at lower rates of interest than you’d get as an individual. They also have flexible ways to borrow – for example they might get an ordinary bank loan or, for split capital investment companies, issue different classes of share.

Not all investment companies use gearing, and most use relatively low levels of gearing.

An indication of the maximum and minimum levels that the company would expect to be geared in normal market conditions.

Morningstar logo Data provided by Morningstar.

FE fundinfo logo Company documents provided by FE fundinfo.