Data as at: 17/05/2024

Gearing

Gearing policy

The Company’s policy is to be geared in the expectation that long term investment returns will exceed the cost of gearing. This gearing is obtained through the use of contracts for difference (“CFDs”) to obtain exposure to Japanese equities selected by the Manager. The effect of gearing is to magnify the consequence of market movements on the portfolio.

Borrowing limits

The level of gearing is reviewed regularly by the Board and the Portfolio Manager. Currently the Portfolio Manager has discretion to be up to 25% geared, or more subject to Board approval.

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.

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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.

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