Capital Gearing Trust p.l.c ($CGT)

Good afternoon, ladies and gentlemen, and welcome to the Capital Gearing Trust Annual Report. [Operator Instructions] Before we begin, we would like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to Head of Investor Relations, Katie Forbes. Katie, good afternoon.

That's great. Thank you very much. And thank you, everyone, for joining today's Capital Gearing Trust annual results presentation for the period ending 31st of March 2026. I'm joined here today by Alastair Laing, CEO; and Emma Moriarty, Portfolio Manager. Before I go into the results, I just need to quickly read out a disclaimer. So please note that the value of investments can go up and down and nothing we say today should be taken as investment advice. Now moving on to the key highlights. So over the year, we have achieved an NAV total return of 5.8%, which is ahead of CPI inflation. In addition, the share price total return has been 6.4%. Our discount control policy has been active over the period, making sure that all our shares are trading close to NAV. In addition, our buybacks have been reducing materially over the past few months. All parts of the portfolio contributed positively to the returns with risk assets being the main contributor and CGT remains defensively positioned, which Alastair will go into more detail during the presentation. In addition, there has been a [ 6p ] dividend confirmed and also the Board are proposing a share split of 10:1. Again, Alistair will share more detail on this throughout the presentation. Without further ado, I will now pass you over to Alistair, who will go over the returns.

Thank you, Katie. Good afternoon, everyone. So Capital Gearing Trust, yes, this shows the positioning and returns as at the year-end in the end of March '26. And as Katie said, positioning remains defensive for reasons we'll go into with our equity weighting just under 1/4 of the portfolio, I should say, risk assets. Those assets are largely made up of listed closed-end funds, ETFs and property companies. Collectively, they have an equity type profile, and we'll look at some examples of that. We have about 45% of the portfolio in index-linked bonds and just under 1/3 in managed liquidity reserves, which is made up of a combination of 13% in credit and just under 20% in short duration government bonds. This positioning is about as defensive as the company has ever been. I think if we look at the general environment, we're seeing some -- a lot of excitement out there. I'm sure a number of you are lining up for the SpaceX IPO. But as we see the largest ever IPO for a company that I believe is expected to lose GBP 20 billion over the next 12 months and seeking a value of just short of GBP 1.8 trillion, it does suggest to us at least that there is some exuberance out there. And as a conservative fund, that means that we are seeking to position ourselves somewhat at the opposite end at the lower risk end of the spectrum, yes. So returns, NAV total returns of 5.8% through to March, as Katie mentioned, all parts of the portfolio contributed. And just bringing everything a little more up to date. This is exactly the same slide, but showing returns through to May because there's been a couple of months since the year-end. The picture, the asset allocation is incredibly similar and returns a little higher, 8.2% returns, NAV total return, and I think around 9% share price total return over the last 12 months. So very much everything that we say today through to the period of the end of March covers subsequent developments after the year-end. Okay. So what changed during the year? Well, not a huge amount. As many of you know, the changes we make tend to be incremental. They can -- the changes can be fundamental over long periods of time. But over any 12 months, the changes tend to be incremental in nature. Starting off with the risk assets, you can see that there was a reduction there with the largest reduction being in our holdings in alternatives which were at 11% at the start of the year and dropped down to 7%. So a majority of our reduction in risk assets were explained by the reduction in alternatives. What went on there is in the summer last year, renewable energy infrastructure had a very strong run, actually at the same time that the gilt market was very weak. Often bond market weakness is associated also with weakness in bond proxy equities. So we thought this looked somewhat out of place, and we used that opportunity to exit all of our holdings in renewable energy infrastructure. That actually proved to be a fortuitous timing because since then, the performance in that area has been very weak. Our conventional equity holdings remain pretty much flat. We are slightly down at 14% compared to 15% at the beginning of the year. But largely, what we've done there is just harvest maturing equity positions. I'll mention a couple of them and move those into lower risk assets, but because the organic performance of the equity portfolio was so strong, that has kept our weighting at a similar amount. Property, there's been a small reduction as a couple of the largest holdings were acquired during the year. PRS REIT was taken private as was Empiric Student Properties, which was purchased by Unite. So a couple of exits there, taking our property down to 2%. So that's what's been going on in risk assets. But I guess at a high level, you'd say we have a very low weighting to risk assets, and that weighting has been reducing for reasons we'll cover later. The main place that we've put the proceeds of those exits are into the index-linked bond market. Yields rose over the year, making prospective returns more attractive. And that's precisely the opposite of what was occurring in the risk asset market basis, we believe that index-linked bonds became more attractive, and hence, they now make up a larger part of the portfolio. You can see that the main additions were in the U.K. index-linked area. Again, as I mentioned in the summer last year, bond yields spiked quite materially. This seemed like a good opportunity to increase our weightings in U.K. index-linked, both from taking money out of the renewable energy infrastructure funds and also from actually selling down U.S. TIPs. So that has been the main change in the year, although at the year-end, at the margin, we were actually increasing our TIPS holdings and selling down U.K. index-linked -- we just started that process really, and that's in part due to concerns around political direction in the U.K. and also the dollar, which has shown some marked weakness during the year, I think, is better placed for some strength. So the makeup of that part of the portfolio does change a little over time. The other point I would make is that we significantly reduced the duration in the TIPS holdings in particular, from about 8.5 years duration. We reduced that duration in December last year from about 8.5 years duration to about 4.5%, and we will talk through that more later. So credit ticked up a bit. Credit, I think, delivered about 6.5% in the year, which was a pretty helpful contribution given it's very high quality and short dated and the holding in short-dated government bonds and treasury bills remained broadly flat. I think the duration pushed out a little bit there over the year, but it is still a very short duration, high-quality part of the portfolio yielding a little over 4%. So that's where we sit today. So just taking a slightly longer the changes in asset allocation going back to 2011. This is the portfolio split into the 4 key categories: nominal government bonds, corporate credit, index-linked bonds and risk assets. with the red dot showing where we are on that overall scale. You can see that the riskier assets being both the kind of risk assets and equities and the corporate credit are lower than they have been on average over that entire period and the higher quality, more defensive assets being the index-linked bonds and the nominal government bonds have a higher weighting, somewhat countercyclically looking somewhat different from the rest of the market, I think, at the moment. I think just to help our shareholders keep a track of what's going on under the lid, we have -- we show this kind of split out of the performance of the different bits of the portfolio. On the left of your screen, you can see the performance of the CGT Risk assets holdings or broadly equities compared to the Investment Trust Index and the MSCI U.K. All shares. A majority of our assets are in investment trusts, and they sit in both of those Investment Trust Index and the U.K. All-Share Index. And we -- these charts go back around 10 years, and our equities have pretty systematically outperformed the underlying indices even with slightly lower risk in there. And this is what you'd expect to see from a specialist manager operating in a specialist market. But I don't think you can take any of this for granted. So yes, this is our performance. Clearly, with hindsight, we could have had a higher weighting to risk assets because returns have continued to be very strong. But given the conservative nature of this mandate, we prefer to have quite a constrained weighting to risk assets. And on the right, you can see the performance of the bond portfolios. Over the last 10 years, absolute returns have been lower here, which is what you'd expect from lower risk assets. However, they have -- on a relative basis, the outperformance has been even stronger. I mean, most notably around '22, '23 when our bond portfolio avoided the worst of the kind of gilt and global bond market meltdown because it was very short duration. Over the last few years, we have been slightly lengthening duration in a number of pockets. But that -- we're pretty proud of the performance of that part of the portfolio, even though in absolute terms, returns have been lower than in the equity markets. So just to take a look at a few of the -- sorry, I think one of the main roles of this -- of Capital Gearing Trust, we think, in an invested portfolio is to play a stabilizing role and not to suffer significant drawdowns in the event of market shocks. And whilst we had any really large and long-lasting shocks in the period, there were a couple of little kind of dry rehearsals, dress rehearsals even. At the beginning of the period, we had Liberation Day when the MSCI world was down almost 20%. And this portfolio, I think, dropped a couple of percent over that drawdown. And also at the end of the period, there was a shock around the Iran war. I think the drawdown there was only 7% or 8%. But again, the portfolio showed very significant resilience. And I guess if from a fund management point of view, if we're trying to create portfolios with limited drawdowns. If things are tough, but with the potential of delivering 6% to 8% upsides if markets remain as buoyant as they are, that's absolutely fine. That is how we are trying to position these portfolios. Clearly, there's an opportunity cost in very strong markets relative to owning equities. But we assume as part of a diversified portfolio, investors will have exposure to exciting bits elsewhere. And this portfolio is meant to be the safer bit, and we were glad that over the last 12 months, it played that role fairly effectively. Okay. Just to look at some of the underlying positions. These are 2 of our largest conventional equity holdings. yes, these are investment trusts. And what these charts show is the discount history over the period that we've owned them. So if we start on the left, BlackRock Energy & Resources Trust, we built a significant position in this -- within Capital Gearing Trust, it purchased about GBP 6.5 million. And across our funds, we bought just shy of 15% of this entire company. That was right at the beginning of the financial year, and we bought that on about a 10% discount. We sold out of the majority of that position in I believe, on a 1.5% discount. So we made a nice gain on the discount as it happens, the underlying equities also performed phenomenally strongly. So that was an overall return of 73% in a little less than a year. So that was very helpful. Another example of a large investment at the year-end, although we exited shortly after was Impax Environmental Markets. We built a position actually only in November, buying 1.5 million shares and they're quite heavy shares. That was at a 9% discount. That fund, actually, we were able to get all of our money -- tender all of our money at NAV, realizing in a 20% total return over a relatively short period of time. And it's great to see some of these kind of opportunities, more kind of esoteric opportunities in the investment trust sector being available to generate some really interesting returns. We did have another example less profitable would be Smithson, which was very successful in terms of discount narrowing. We tendered all our shares during the year at NAV. However, the underlying performance of the assets was less strong. So actually, our overall return on that was minus 2%, even though we did manage to get a lot -- deliver a lot better return than the underlying assets because of the discount coming in -- so it goes to show you kind of win some and you lose some. But if you can get a broad spread of these type of opportunities where you have a high probability of discount narrowing overall, the outcome tends to be fairly good. That has been the very long-run experience of this company. And the environment that we're operating in today is operating -- is offering a lot of these types of opportunities. Just very quickly, we had quite a significant weighting to emerging markets, which have performed extremely well. This is the performance of our 3 holdings in EM and their returns over the year range from about 30% to about 100% returns. We entered or grew our position in interesting ways. Mobius was a classic for Capital Gearing Trust in that we knew that it was having a tender at a very modest discount, and we were buying in at 10% discount. So that offered a great opportunity for Alpha there. As it happened, the underlying assets didn't perform as strongly as the other trusts, but we made a good exit in terms of discounts coming in. Fidelity Emerging Markets, we already had a position, but we increased that when there was a large placing during the year at a significant discount to the share price. And that company has gone on to perform extraordinarily well off the back of growth in chip makers in Asia. We have been trimming that position as it's grown. And Aberdeen Asian Focus was a fantastic return for us. We actually got into that position through a convertible bond. We were by far the largest holder of a convertible bond, which converted into equity in May. It was a very cheap way to get into that position. And as it happens, we were very fortunate that our return experience since coming in there has been extremely good. So it's great to see a broadening of return out of the very clustered magnificent 7 S&P-focused markets that we were experiencing in '24 and '25. Really over the latter bit of '25 and '26, we've seen a broadening of opportunities and investment trust have been a great way to access some of those. A quick comment on infrastructure. This chart shows the discount over the last 5 years of HICL, which is one of our largest holdings. So that's a listed infrastructure company. And we didn't hold it in large size historically. But after kind of the Liz Trust and the bond market weakness, you can see that the discount blew right out. This was a good large stake and our returns in the company have been strong. However, there was -- as some of you may have seen in October or November this year, there was a proposed merger between HICL and TRIG, another infrastructure company, which we thought was damaging to our shareholders' interest, and we played quite a high-profile role in ensuring that, that merger didn't go ahead. And I'm glad to say the performance of this company has been very strong since then. Just a general statement on infrastructure. I think it delivered about 11% during the year to March and mid- to high teens over the last 12 months. So given the low-risk nature of the underlying assets, we think this has been a really exceptional kind of exceptional return shows that the investment trust market does allow access to a range of different underlying varied assets and a chance to deliver outperformance relative to those underlying assets. So that's a quick canter through. Emma is going to touch a bit more on the motivation of the various changes in the bonds, but just to touch very briefly on the share split and why that is happening. It's always a great pleasure to show the performance of Peter's very long -- Peterpeillar's very long track record, which goes back to 1982. It's been an exceptionally strong period of organic growth with share price appreciation from 21.25 to 51,050p or GBP 51.50p. That's about 240x share price return and I think just shy of 300x, including dividends reinvested. So a truly extraordinary return there. But it does mean that with a quite a heavy share now, there are certain shareholders for whom this becomes difficult retail shareholders that are making relatively small contributions into their savings schemes want to invest that over a number of different investment companies. So the Board is keen to make Capital Gearing Trust a suitable and easy investment for as many different investors as possible and having taken advice from our broker, JPMorgan, they recommended that a 10-for-1 share split would be helpful in that regard. That will result in the share price, if it remained at GBP 51.50, actually reducing to GBP 5.15, which sounds like a pretty drastic 90% reduction, but don't worry because each shareholder actually gets 10x as many shares. So the aggregate value of their holding remains the same, just each share is worth a little less. But don't worry, you don't have to do anything. This vote will go to shareholders. And assuming it goes through, you won't have to do anything, that change will be reflected by your broker or platform. And the value of our holdings will be unaffected indeed, hopefully, by making this more suitable investment for a broader universe of investors. Hopefully, that will support the rating and in the long run, increase the value of your shareholding. But I expect essentially for it to have no impact for a vast majority of people. Well, that's a quick canter through the last 12 months. I will now pass over to Emma, who can talk a little bit about the outlook.

Thank you, and good afternoon. So Alistair discussed in detail the positioning of the portfolio, both now and versus its recent history. And one of the things that's worth drawing out is how defensively positioned the portfolio is versus its recent history. And that's essentially a function of our outlook. And today, I'll discuss 3 features of that. The first of those is geopolitical tensions. So recently, we've had the outbreak of war in Iran, which has caused an energy price shock, which has had flow-on effect, heightening market volatility, particularly in commodity markets and in interest rate markets and has also deepened the stagflationary outlook. The second feature is macroeconomic imbalances by which we're referring to elevated government debt, deficit fueled government spending and low household savings, particularly in the U.S. which has led to more persistent demand-led inflation pressures and also steepening yield curves. And the final feature of the outlook is stretched equity valuations, particularly in the United States. And against a backdrop of a deteriorating macroeconomic outlook, speculative behavior and geopolitical tensions, we believe that this raises the risk of a sharp correction in equity markets. So turning to the first of these themes, which is geopolitical tensions. For some time, we have spoken to you about changes in the structural economic outlook, which mean that the future is likely to be more inflationary than the recent past. And one of these structural changes has been the shift away from globalization and towards protectionism. And this recently has culminated in the outbreak of war in Iran and an energy price shock, which saw benchmark prices increase by around 35% from the beginning of the war till now and sort of 50% to 60% from the beginning of the year until now. Now while energy costs are generally stripped out of any core measure of inflation due to their inherent volatility, these movements are actually particularly important for the formation of inflation expectations over time. They transmit very quickly into secondary product markets like petrol prices and jet fuel, most notably. And then also over time, in the U.K., for example, into retail electricity and gas prices, and then over more time into things like food prices with the Food and Drinks Federation in the U.K. forecasting food price inflation of at least 9% by the end of the year. The other impact that these sharp price movements have is actually demand destruction. And we've seen that beginning through the headlines around flight cancellations in Europe and across the world and also in less wealthy countries like, for example, in Indonesia, where this is being government mandated, for example, that workers should work from home at least 1 day a week to reduce their demand for oil and gas. This is not something just playing out in short-term markets. It's actually playing out in futures markets as well with futures curves pricing and some disruption for some time. Now this makes sense for a number of reasons, the first one being the extent of the destruction of energy infrastructure and supply capacity and the pure time that it will take to bring some of this back online. And the second is due to uncertainty around the duration and the intensity of the conflict with recent ceasefires not seeming particularly durable. So all of these play towards a stagflationary outlook on one hand, suggesting that inflation is likely to be higher for longer, but also suggesting that output is likely to be more depressed than it has been. It's also worth standing back a little bit. Obviously, the war in Iran is the most pressing inflation shock that's hit the global economy. But it's also true that the U.S. directly and the global economy indirectly are still adapting to the structural changes that have been brought in by the protectionist agenda of the Trump administration. Now the right-hand chart here shows the effective tariff rate, which increased dramatically for the U.S. over the course of 2025. And that's still in the process of being fully passed through to consumers. Now it's true on one hand that the U.S. Supreme Court ruled against the legality of VAE for tariffs, but it's also true that the Trump administration and associated government arms have continued with Section 232 investigations to continue to be able to levy these elevated tariff rates against sectors and countries. The other feature that's worth drawing out is on immigration controls and the effect that this is having in the U.S. labor market and on the output capacity of the U.S. economy. There has been a lot of macroeconomic commentary towards the end of last year and more recently around the weaker U.S. labor market, which was mostly based off lower nonfarm payrolls prints that had been seen under the Biden administration. Now it's important to note that part of the reason for this is actually that the breakeven number of jobs required to keep unemployment constant in the U.S. has fallen quite dramatically due to the reduced inflow of new workers. And this, too, plays to this idea of a longer-term equilibrium of higher inflation and a lower level of trend growth than had previously been the case. The last thing to say on this is that stepping back more generally, it's also empirically the case that once inflation is established, it becomes very hard to get rid of it. So this chart is the summary of a set of conclusions from an IMF paper, which studied 100 inflation shocks where a shock is defined as inflation rising by at least 2 percentage points. And what it shows is that the time that it takes to get inflation back down to within 1 percentage point of target can be several years at least. Now the reasons for this are multiple fold, but some of these remain very relevant to the current day. One of them is essentially premature celebrations from central banks failing to look through to second order effects that make inflation more persistent, particularly from the labor market, which we've seen, particularly as the case in the U.K. And the second is the difficult political economy of keeping interest rates high when headline inflation appears to be falling. And this has been one of the features that's played out in the U.S. in the lead up to the selection of a new Chairman of the FOMC, where the incumbent, Kevin Walsh was essentially deemed or perceived to have been selected on the basis that he would be someone who is amenable to lowering interest rates. So turning from inflation to what's actually been going on in government bond markets. I think there are 2 things that are worth drawing attention to, and they shed some light on the rationale for how our fixed income portfolios are positioned. So the first chart looks at short-term interest rate markets in the U.S. and the U.K. And if we turn our minds back to the beginning of this year, it was the case that short-term interest rate markets were essentially predicting 2 to 3 interest rate cuts in the U.S. and the U.K. from the central banks. Following the outbreak of war in the Middle East, it's now the case that these markets have repriced and the U.K. market is predicting 2 to 3 rate rises in the U.S., possibly 1. We look at this and think, particularly in the U.K., this represents quite attractive value on the basis that while we agree with the perception that inflation is likely to be higher for longer, the growth outlook in the U.K. looks increasingly weak in a way that it probably makes 2 to 3 interest rate rises difficult to deliver. And because of this, we have concentrated quite a lot of our portfolio, particularly relative to the past 10 years in managed liquidity reserve, which is effectively short-term interest rate exposures in government bond markets and in corporate credit. The other feature worth looking at is long-term interest rates, which is the right-hand chart, where the movements suggest a degree of skepticism, both in central bank's abilities to keep inflation under control and in government's abilities to keep spending under control. And indeed, there's continued pressure on long-term interest rates in most of the major global government bond markets. Our view is that this pressure is likely to continue, and this was one of the major motivating factors from the move that Alistair mentioned earlier to shorten duration in both our TIPS portfolio, where we shortened duration from around 8.5 years, longer than the index to 4.5 years, much shorter than the index and where we shortened U.K. index-linked gilt exposure from around 7 years to around 5.5. So -- this slide, I think, shows some of the motivation for why we expect this continued upward pressure on long-term government bond yields. I think it's worth summarizing this by saying there are both supply and demand pressures pushing up government bond yields. On the supply side, this is around pressure created by ongoing deficit spending by governments, particularly in the U.S. and the U.K. And indeed, in both countries, it's quite plain to see that there's no real political constituency in favor of fiscal austerity or cutting deficit expenditure. From the demand side, one of the continued trends that we've seen is the decline in price insensitive buyers of long-term government bonds. So in the U.S., some of that has come from the change in central bank stance away from quantitative easing, so buying government bonds towards quantitative tightening. And indeed, from price insensitive demand from foreign central banks who had been keeping large amounts of foreign exchange reserves in government bonds, but over time, switching those away from U.S. dollar-denominated instruments towards foreign currency-denominated bonds and indeed towards gold. In the U.K., all of those changes in central bank stance also apply, but the other trend worth noting is the diminishing role of pension funds, particularly defined benefit pension funds and LDI funds in the long end of the gilt market, which is something else which has led to sort of I suppose, sustained upward pressure on long-term government bond yields. Turning now towards relative value. Because we run a multi-asset portfolio, we are constantly looking at the relative value between our core markets, particularly when adjusted for risk. And what this chart shows is that against this backdrop of macroeconomic imbalances and heightened geopolitical volatility, 20-year TIPS yields and indeed 20-year index-linked gilt yields have continued to adjust upwards in response to this. But on the other hand, the equity market, and here, we show the equity cyclically adjusted price earnings yield on the S&P 500 in the U.S. These equity markets continue to remain somewhat ambivalent. And it's now the case that the yield on the 20-year TIPS is materially higher, so stands around 2.7% than the Cape yield on the S&P 500, which is closer to 2.5% without adjusting for the relative risk of these instruments. And this is one feature of relative valuation, which has supported our portfolio construction where we allocate more materially to index-linked bonds and in a constrained manner towards risk assets. Turning towards equity valuations more specifically. We look at this on this slide in 2 different ways, but the key point is that if you're looking at long-term returns, the starting valuation really matters. Now on a Cape basis, it's currently the case that the Cape multiple on the S&P 500 is in the 99th percentile of its measured history. And the only time it has been higher than it is at present was during the dot-com bubble, which didn't end well for equity holders. So while the chart shows that we are indeed in the tenth decile and that returns don't look terribly attractive from here, it's important to remember that we are already in the very extreme of that decile. Turning to the right-hand chart, which puts it in forward PE terms, the starting valuation looks less aggressive at 22x forward PE. But if you look at where the pink line, the 22x intersects with the green scatter chart, the absolute levels of the past returns starting at this starting valuation still appear to be much lower than the headline conventional 10-year treasury yield available today of 4.5%. So from a few different angles, starting valuations for the U.S. market look extremely demanding. Now of course, it's quite frustrating to say starting valuations look demanding and talk about 10-year returns, given that it's true that people are often very interested in short-term returns, and this says nothing as to short-term returns or to whether and when the catalyst might appear other than to say that there do appear to be a number of catalysts. But our cautious positioning in risk assets is driven by the fact historically that when equity markets correct from these very extreme valuations, they can fall quite a long way. and they take a long time to recover the lost ground. Now the chart on the left-hand side shows the 1987 stock market crash, which happened with a buildup of increasing sentiment of overvalued equity markets, rising interest rates and current account deficits, which may sound irly familiar. And on the right-hand side was more recently the 2008 crisis, which was housing bubble combined with a subprime crisis and the collapse of several financial institutions. So all of that is to say that while we cannot identify exactly what the catalyst might be for a correction other than to say that there are several of them around at the moment, we can say that equity markets have historically corrected quite a long way and taken quite a long time to recover lost ground. So that concludes what I had to say on the outlook. I'll leave you with the key messages here on our 3 key themes, which support our portfolio positioning of ample managed liquidity reserve and overweight to inflation-linked bonds at short duration and a constrained allocation to risk assets.

That's great. Thank you very much. We'll now move on to the Q&A. We have received a number of questions already, and we'll aim to get through all of them. But if we do not have time, we'll certainly provide a written response at the end. So the first question is, while we wait to see details with the transfer seemingly intent and banning or taxing interest-generating investments in ISA, if that comes to pass, will the company reconsider its dividend and interest distribution policy?

Great. Okay. So I think this question refers to the fact that the Capital Gearing Trust dividend, which is 66p this year is split between what's called streamed income and dividend payment. Clearly, if you hold it within a tax-sheltered account, such as an ISA or a pension fund, then none of this matters. If you hold it outside a tax privileged account, then you will pay your rate of income -- sorry, on the streamed income, you will pay tax as an income and on the dividend stream, you pay a slightly lower rate of tax. I think this question is asking if ISAs ceased to have protection from income, a tax protection on income streams, would we still employ it? Well, I think the short answer is we have to see any -- we don't want to preempt any changes. But if all that changed was that ISAs were no longer providing streamed -- tax shield on streamed income, then we would leave the current arrangements in place. What you need to bear in mind there is if we don't stream the income directly from the vehicle, it gets charged capital -- sorry, corporation tax. That stream is charged corporation tax. So there's a 25% charge within the vehicle. So you reduce that stream of income and then it's distributed and for a higher rate taxpayer, that will be around 39%. So basically, most taxpayers will -- would continue to benefit from having the streamed income and paying a higher rate of personal tax then have the double hit of corporation tax and then a lower rate of personal tax. And of course, there will still be people who hold it in a pension fund or other tax privileged ways or charities or whatever, who will get a higher return with the income stream. So obviously, you have to take your personal tax advice, and that's rather an intricate answer. But yes, that is the rationale for the streaming.

We do actually have another question on dividends. So someone has queried why there has been a cut to 35% from last year, considering we're buying back so many shares.

Okay. So the dividend rate is not really impacted in any material way by repurchasing shares. As an asset -- from an asset management point of view, we actually -- we are a total return manager. So we're kind of -- we don't try and manage specifically towards any income level. And at the margin, we would prefer to generate capital gains over income distribution for exactly the reason I touched on earlier, some people will suffer higher tax on income than they would on capital gain. So it's never been an objective of this company to have a very stable dividend. We distribute the income that we have that the company gets, but we look at all of our investments as kind of total return.

Thank you very much. We've received 30 questions in regards to our allocation. And the first one being, what would make you materially increase equity exposure from current levels?

So I'll take a very quick historic example, then I'll hand over to Emma to get into the meat of the question. at a kind of philosophical level or as a fundamental part of our approach, we're seeking to generate conservative portfolios with minimal drawdown at times of crisis. So that means we will only have high-level weighting to equities at a time that they look kind of not highly valued and quite defensive. So as a specific example, in 2020, after COVID, you saw quite a significant drawdown in the market. And in pretty short order, we deployed 10% of our dry powder. Actually, it turned out that pull down only turned out to be there for about 3 months. We had anticipated it would be there for a year or more. So essentially, it's a short way of saying that certainly a 20% drawdown in the markets today wouldn't do it because we actually think they would still be quite highly valued. But if we saw some of the drawdowns on the scale that Emma was pointing to kind of historic bear markets, then I think that would put the equity market in much more interesting positions. And that is the point at which we would deploy the dry powder. And the other thing I'd say very briefly is it's not just equity markets, we can also deploy capital into long bonds. So if we do see a big sell-off in long bonds, that's also another area we can potentially deploy into. But Emma, I don't know if you have anything to say about valuations.

Yes. I think like at a general level, what we're doing when we're coming to our asset allocation across the 3 main buckets, managed liquidity reserve, inflation-linked bonds and then risk assets is we're trying to solve for a combination of 2 things. The first thing we're doing is looking at the macroeconomic risk outlook and what does that imply for movements in interest rates, inflation and for example, the corporate profits of operating companies, but we're also looking at where relative valuations stand at the moment. And I think at the moment, it's the case that actually the operating environment looks quite difficult for corporates, one. And number two is that starting valuations look really rich. Now it's true that a lot of that richness appears to be concentrated, not solely, but a lot in U.S. equity markets, but we do sort of, I guess, position our allocation on the basis that if the U.S. equity market were to correct, it would likely have flow-on impacts to a lot of the others. So I think we'd be looking for a combination of an equity market correction in the first instance. And then we'd also be looking at what was happening to relative valuations across our different markets. So where do equity values and yields look relative to, say, inflation-linked bonds.

Thank you very much. You've answered questions with that response. Thank you very much. We have one question, which you have touched on already. So how has your investment process evolved in response to changing market conditions?

Well, one thing that I'm going to touch on, which we should have mentioned is not quite answering the question, but one change in the year has been the fact that we sold out completely of our gold position which I know for some of our investors will be something close to Heracy, but this -- we saw gold prices move at extraordinary speeds, and we were just finding it increasingly difficult to kind of analyze and think about the role that it played in our portfolio as it just seemed to be behaving much more like a risk on asset than a kind of safe haven asset. So we -- that's been a long-standing if more holding in the fund, and that has gone. The core of the question was about investment process, wasn't it?

Worth drawing attention to, which Alistair mentioned and then I touched on as well is actually the change in our analysis, particularly of bond markets and long-term interest rates. It had been the case for some time that we had held a very long duration TIPS portfolio between kind of 8 and 10 years in duration versus index of 7. And the reason for that was we had been holding this for essentially negative correlation with U.K. equity markets in the event of an equity market downturn where we sort of imagined a situation where there was a sort of demand-led downturn, Central banks had to cut interest rates very quickly and restart quantitative easing, particularly over the course of last year as we watched long-term interest rates rise, we also sought better to understand some of the dynamics going on in government bond markets, which I discussed earlier. And sort of having analyzed these, we concluded that actually the bigger risk to investors in our funds was that interest rates continue to rise before they fall on the basis that government spending in most of the developed markets remains very elevated. This is unlikely to change, waning demand for long-term bonds. And so what we actually ended up doing is having, I guess, rethought our analysis, repositioned, particularly our TIPS portfolios, but also shortened our index-linked gilt portfolios off the back of the same type of analysis.

That's great. Thank you. Next question is, why is so little of the portfolio in commercial property REITs?

I'll take that one. So I mean, I think to give some starting color on the property exposure, our allocation to property had been considerably higher. But at a top-down level, we've reduced that a long way down to kind of 2 percentage points of the portfolio, and this has been around both a constrained allocation to risk assets, but also when looking relatively across the different risk asset markets that we invest in, we saw risks to valuation essentially off the back of the impact that rising interest rates and particularly rising long-term interest rates would have on property valuation yields. Now where we have continued our investment in property markets has generally been in situations where we see rental increases that are directly linked to the price of inflation and a lot of transaction activity in the market. So we've been invested in residential properties, care homes, student property where valuations were very clear and uplifts were generally done in relation to inflation. We have been more bearish on commercial property for 2 reasons. One is that rents are less clearly set in relation to inflation and also two is that there hasn't been the degree of transactional activity in those markets for us to establish where valuations sit and how much those valuations have adjusted relative to rising interest rates and whether that then constitutes an attractive entry point.

Another question is, what do you see as the outlook for infrastructure investment trust? And do you have exposure to digital infrastructure?

Yes. So the -- we remain pretty bullish on our kind of core infrastructure holdings. Hence, they are pretty significant weighting. Our main holdings there sit in HICL Infrastructure, IMPP and 3 IN infrastructure. And we also have some kind of some funds that provide debt to infrastructure projects being GCP Infrastructure and Sequoia, which have some kind of hybrid debt equity type exposure there. I think the underlying assets look like they should be capable of delivering somewhere in the 9% to 11% range depending on which pool of assets you're talking about. But the combination of that and discounts of between now about 10% and out to the kind of mid-20s percent means that we expect overall returns like long-term sustainable returns from a number of these holdings to be in the high single digits or low double digits, which is very attractive for the risk return profile. So the concerns there are similar to the ones of the property sector. Essentially, as Emma was saying, the concerns about kind of that long yields rising could push down property valuations. There is a read across into infrastructure. I think there tend to be more levers that you can pull in infrastructure. They are closer to operating businesses. But that is something we have in the back of our mind. We also -- it is also the case that discounts have come in. A lot of these companies were trading in the kind of 20% to 30% discounts, particularly the renewables were very wide, and these have now come into kind of teen levels of discounts. So we definitely -- that has driven very strong performance over the last 12 months. We think there's more to go. That's why we hold them in quite large size. But we've definitely had some of the kind of excess return. But yes, as I say, I think if you're going to have exposure to equity markets, this seems like quite a reassuring way to get it to us at the moment.

Thank you. A very quick one for you, Emma. How do you define short-term government bonds?

So in the context of our portfolio in our managed liquidity reserve, when we look at short-term government bonds, we're really talking about kind of 0 to 2 years in maturity where the yield on the bond is really directly a forecast of market participants' expectations of central bank rates.

We have got another question on the share split. So someone has queried why we haven't another bigger share split of 20:1, considering we do not want to repeat this. I think before I hand over to you, Alistair, I'm guessing it's because we spoke to the broker and different platform providers, and they recommended the 10:1 split as being a sensible one for this particular investment trust vehicle.

Well, I'm sure that's correct. So yes, I agree with that.

Right. We're glad to hear it. We have another question in regards to HIL. So do you have any hangover concerns of HICL following their misstep at the end of last year? Or do you see that as being an isolated incident in the past?

So we think that kind of capital discipline is absolutely central to optimizing returns for investors. And I think if we look back to 2021, 2022 in a period of kind of ramp and issuance of these kind of companies, there was just definitely a sense of the managers and the Board being probably too close to one another. And then when the discounts blew out, boards on the whole were slow to realize that things have changed in a structural sense. And they very influenced by managers in general. And on the whole managers are not keen on share buybacks. So about this. But we are banging the drum pretty loudly, as you know, as it relates to HICL. We've now put out public letters in 2 separate occasions. We've engaged very closely with the Board. They have provided us with reassurance that they have heard us. We don't know how to put our case much more strongly without taking kind of more drastic action. At the moment, we don't think that, that is necessary. So we're just going to have to see how things unfold. Interestingly, this is a bit of a sideshow, but I was looking at a study that JPMorgan did of activists and saying that most activist interventions don't really deliver much other than potentially a kind of short-term kind of blip. I mean we wouldn't actually count ourselves as activists. But the one dimension in which activists can genuinely bring around improvements is in the field of capital allocation, i.e., if companies are grossly misallocating capital, this is one area where you tend to see an enduring benefit. So rest assured, we're going to keep banging the drum wherever we see issues. We think behavior has improved a lot. I think -- sorry, behavior is not quite the right term, but Board robustness has improved a lot, and we will continue to be flying the flag for high-quality capital allocation.

Thank you. I think in the interest of time, I will ask one final question, but it is quite a big question for you. So do you expect performance to improve over the coming year? Or are you mainly focused on being insurance against the crash? If the latter, then what is the main argument for CGT over the likes of gilts?

So yes, I think that's a good question. I mean, I guess the main argument over gilts is that Capital Gearing Trust has delivered, well, share price terms, 9%, NAV, 8% over the last 12 months. Would we expect higher returns than that? No. I think that is probably towards the top end. But it does keep things ticking over if times are good. I think if you say what is the benefit compared to gilts, I mean, it depends what you mean by gilts. Obviously, if you have short duration gilts, it will be similar to cash, and you could be pretty sure that it won't go down, but neither will it go up. If you hold longer duration gilts, then you're exposed to potential capital loss. And who knows who the Prime Minister is going to be after the Makerfield elections. So I think actually, what this portfolio offers is much more diversified defensive exposure than just buying gilts. It offers some potential to keep returns ticking over in that defensive part of the portfolio at a historically higher level than gilts have delivered. And on the other hand, we're ready. we obviously -- you can see from the materials that we presented today, if we were in our -- 100% in our equities, our performance would have been much stronger, i.e., our returns would have been much stronger. But that's not what we're seeking to do. I think our investors are more than capable of identifying kind of high beta equity managers if that's what they want. And I don't think they pick us to kind of suddenly play that role whilst they're not expecting it. They will expect us to kind of represent that defensive part of the portfolio -- and maybe we're jumping at shadows. Maybe investing in SpaceX and having the S&P record revenue multiples, maybe this isn't unusual or maybe we're just entering in a period where returns will be fantastic. And I think a lot of investors will do well in that environment. Our job is simply to point out that there is something quite unusual going on here. There are very few historical precedents with equity markets like they are behaving currently that have turned out well. That's not to say that there's no chance that this is one, but you want to have part of your portfolio that -- where the manager is ready for something bad to happen such that if it does, you can respond and that we can respond on your behalf.

That's great. Thank you very much indeed, Alastair, Emma and Katie for your time this afternoon. Perhaps before I redirect investors to give your feedback, which I know is particularly important. Alistair, I don't know if you have any closing comments. And then as I say, I'll redirect investors to provide you with their feedback.

All right. I should have prepared for this. Obviously, I'd like to say thank you for your ongoing support. If you have any questions that we haven't answered, please do follow up. Any questions around the share split. Please do get in touch with Katie. There's an excellent page on our website, and we really appreciate your time here today and your continued support for the company.

That's great. Alastair, Emma, Katie, thank you once again for your time. If I could please ask investors not to close this session as we'll now automatically redirect you so you can provide your feedback in order the team can better understand your views and expectations. On behalf of the team from Capital Gearing Trust, thank you for your time this afternoon.