CT UK Capital And Income Investment Trust Plc (CTUK) Earnings Call Transcript & Summary

Good morning, and welcome to the CT UK Capital and Income Investment Trust Plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to spend on the following poll. I'd now like to hand you over to Peter Brown. Good morning, sir.

Good morning, and welcome, everyone. Thank you for joining us this morning. My name is Peter Brown, I'm part of the Investment Trust team at Columbia Threadneedle. With me today, we have Julian Cane, who is the Lead Manager of the CT UK Capital and Income Investment Trust, and he'll run you through a bit about the portfolio, some of the positions that he holds and his outlook for 2024. So with that, I'll pass over to Julian.

Good morning. Thank you, Peter. Thank you, Alessandro, and thank you, everyone, for joining us this morning. So as it says, the presentation today is designed to look in a little bit more depth than we've talked previously about some of the individual names within the portfolio, but more broadly about how we construct the portfolio and some of the thoughts and reasonings that go behind both our stock selection and portfolio construction. First off here is the usual investment risk warning. That will be on the presentation pack, so people can read it in their own time rather than running through it in detail now. Of course, we're an equity investment. So we have all the risks and hopefully rewards that come with that. Here's a quick biography of me. I won't run through this. But in essence, the key point is hit on by the next slide, where it notes that I've been the manager of this Investment Trust, CT UK Capital and Income since March of '97. So very nearly now 27 years, which is obviously a long time for one person to have been in charge of any one fund. And I see it as an enormous privilege and pleasure actually to have been involved for so long now. A little bit about the trust itself, where we are a U.K. investor, we invest in U.K. shares primarily. Our objective is to beat some mainstream U.K. Index, the FTSE All-Share Index. And over the period that I've been running it and the years prior to that, we have a record of having increased our dividend each and every year. To be an AIC Dividend Hero one has to have increased the dividend by 20 consecutive years. We've now stretched out to 30 years in a row. So that's a record we're proud of. And obviously, we're very much like to continue. For investors, one of the attractions of the fund is that we pay dividend, a rising dividend, hopefully, quarterly and to make life even better. We aim to pay those as close as we can to quarter end, which I think sort of administratively and in a common sense way makes life simpler for everyone. So we aim to pay at quarter end, except for the final calendar quarter, December, where we try and pay it a little bit earlier to make sure that people have a bit more ahead of Christmas. Now one of the wealth warnings on that prior page would have led you to the fact that Investment Trust share prices can be quite different to the asset value. And a long time ago, the Board at that stage took the view that because we were very much an investor in liquid U.K. companies, we could, at any stage liquidate the portfolio, if we needed to. And therefore, it was slightly illogical for the share price of the investment trust to differ that much from the share price of the Investment Trust, obviously, on a pro rata basis. And so we initiated a policy by which we aim to keep the share price pretty close to the net asset value. A number of investment trusts do this, but not all. And certainly within our peer group, there are a number who don't try and keep the share price close to the asset value. So it may appear that they're cheaper as they trade on a bigger discount. I think the issue there would be if the discount is wide now, could it get wider. For us, our discount currently is around 4%. It's only under very, very exceptional circumstances, been any wider than that. So yes, we are on a narrower discount than some of our peer group, but that's close to a bigger discount as it's been since we put in place the discount protection mechanism. We also on the flip side issue shares if we trade at a premium. So it is a symmetrical arrangement that we have. So here's a little bit about the agenda. What we'll be covering today. I certainly have covered before, and all, I think, U.K. investment managers in equities, would say that U.K. equities are very attractively valued at the moment. So we'll just have the one slide on that. We'll discuss how the portfolio for this particular trust is really much more than the U.K. economy. A lot of people for whatever reason are somewhat pessimistic about the U.K. economy and prospects. I will try to make the point that this portfolio is really quite different to the U.K. economy. So yes, we are focused on U.K. companies, but that is not the same as saying we're focused on the U.K. economy. We see quite a number of interesting individual opportunities, and I'll run through 3 of those. And I'll show also how our focus has generated steady income growth over time. We'll also discuss the outlook a little bit, although perhaps we can touch on that more in Q&A as we go through. So here is the promised slide on U.K. equities. It's quite busy in a sense there's a lot of information put onto this page through these charts. And I think for those unfamiliar, it perhaps just needs a little bit of explanation so that you can get the full flavor of the information out of it. So we show the 5 different indices, 2 from U.S., 2 from the U.K. and 1 from Europe, each in their vertical silos. Just taking the one on the left to start with and to explain how that works. The data all relates to historic price earnings ratios over time for these indices. So when it says median, as that green blob is the average median that shows you that the U.S. S&P 500 Index over time, the average P/E has been just a bit under 16x, I think, so far, so intuitive. The red dot on that same stack shows you the current P/E. So just very simplistically that's 18x. The current valuation of the U.S. S&P 500 Index is therefore a bit above average, a couple of percentage points. The other information in the bar, I think, also is instructive where the gray bar shows you the interquartile range. So in effect, that shows you how the average or how P/E ratios have been over 50 -- well, exactly 50% of the time. So 50% of the time, the P/E ratio historically has been within, say, 17x and 14x. So that shows you where the index rating has been exactly half of the time. The wider bars capped at the top and bottom show you the 10th to the 90th percentile. So except under really quite rare occasions, the rating has been within those broader bands. So you can see, again, going back to the S&P 500. So the current rating about 18x is getting up towards as high as it has been, except for those real tail events. So that's how the information should be interpreted. And of course, one can see the way the graph is constructed, rather like a smile. So U.S. indices are either side. You can see they are more highly rated under pretty much any time horizon compared to the European or U.K. one's which are in the middle. And at the bottom, you can see the FTSE 100 Index in the middle with that red dot currently outside of that 50% range. So the U.K. Index is trading currently a long way below average and a long way below that 50% range. That's even more true for the FTSE 250 Index. So the 250 companies trading underneath the FTSE 100. 100 is the largest, 250 is the next tier down. And you can see that the current rating, just a smidge above 10x is really at very, very depressed level. So there we are. That I think gives you the information as we described at the top of the page. So U.K. equities, the FTSE and the 250 are trading at low levels compared to their own history, their own vertical bars and also pretty chiefly relative to much of the rest of the world. We've got Europe and U.S. in there as well, particularly the 250. We'll come back to this theme at the moment. So yes, FTSE 100, the largest companies are cheaply valued that, I think, is clearly shown by that slide. But the 250 are very, very cheaply valued by their own history. So where are the opportunities beyond that asset allocation views that U.K. equity achieve, how do we find the opportunities within all of the companies that we can choose to invest in? And to help analyze that we have an investment process, which we break down into 3 key elements to help identify these opportunities. And I'll just touch on a couple of these, but we'll illustrate in a moment with examples, which hopefully bring it a bit more to life. So quality is the one I'll kick off with. By quality of the company, in essence, what we're trying to grasp is how understandable is a business. Is it driven by perhaps complicated but understandable technology? Is it a particular advantage that it has through a premium product, maybe strong brand name importantly, does this advantage last over time? Is it something that can be competed away. It's the characteristics that a company can generate attractive returns. And continue to generate those returns into the future that's key when we assess the quality of the operation. Linking closely to that is the assessment of the management. Do we trust and believe the management that are guiding the company. And importantly, are they incentivized to do the right thing. Perhaps one would naively hope would naturally do the right thing, often that's the case, but it's also important to look at the incentive structure and to make sure that management teams are aligned, not just through those perhaps short or medium-term incentives, but also through their own shareholdings in the business as well. The third element of that would be valuation. We tend to look at company valuations through a discounted cash flow in a sense, that's the purest way of looking at the company to have an assessment of the earnings and the cash that the company will generate out into the future and then bringing that back to a current value. That would be the prime way of valuing a lot of companies. It doesn't work for some companies, but it's the benchmark that we use. And importantly, in assessing the valuation, we appreciate that when making assessments about the future, there is every possibility of being wrong, assessments of the future are inevitably imprecise and unclear. So we try to make sure there's quite a sizable margin of safety between what we hope or believe the company might be worth in the future and the price that we're paying today. The intersection of those 3: quality, valuation and management. And the assessment of that intermingling and coming together that helps drive how we think about individual companies and whether they should be included in the portfolio or not. Coupled together with that very stock-specific assessment, we think of risk for individual stocks and for the portfolio as a whole. And there are a number of different ways of thinking of risk. So we compare ourselves performance-wise to the FTSE All-Share Index, as I mentioned right at the top. So in any rate, it's important to know who one is competing against. So we do consider our portfolio and stock positions relative to the benchmark. But nonetheless, we accept and obviously want to be different to that benchmark. Otherwise, one couldn't possibly hope to beat it. It's also a consideration at least in the purest academic sense in the financial literature to consider volatility, how much the share price and therefore, a portfolio moves relative to the benchmark or as an absolute. Interestingly, of course, in financial theory, it doesn't distinguish between volatility on the upside, so good news when the share price goes up and volatility on the downside where perhaps share price falls because of disappointing news. I'm sure anyone listening and certainly, I as a personal shareholder thinks of these 2 things in a very different way. So the academic theory says one thing, the actual day-to-day live experience and what shareholders really want is really quite different. So I think at the most basic level, shareholders are most interested in absolute risk by which we mean the risk of loss. How does the portfolio then compare to the FTSE All-Share Index? And how does it look in absolute terms? Well, we have a couple of pictures here just to give you a bit more of a feel for the -- what's going on underneath. And starting with the pie chart, the doughnut to the left, you can see 2 separate rings. The outside ring of this doughnut shows the direct exposure of the portfolio. So this really is most easily thought of as where are the shares listed. And as you can see, the greenish, the large circle going around the outside shows that the majority of the portfolio is listed in the U.K. Now that's very much as you'd expect, we are focused on U.K. investments. But we've got an exposure to North America and to Europe as well. But it's really when one looks inside the inner ring of the doughnut that it becomes a little bit more clear, just how different we are to the U.K. economy. And here, you can see that our exposure to North America and Europe is actually greater than that of the U.K. So how have we produced this in a ring? What does it really show? It's taking the portfolio as a whole, and it looks at a stock-by-stock basis and considers where the revenue for those companies come and then it weights it and puts it together to give us a portfolio representation. So although the company might be listed in the U.K., that's the outer ring, actually, its revenues may well be driven outside of the U.K. and this inner ring is showing you, in fact, the North American revenue together with European revenue is more important than the U.K. So yes, U.K. is important, still the single largest, most important driver of revenue for our stocks. But actually U.S. and Europe together are more important. And then we look at the chart, the bar chart to the right, showing the market cap distribution. And here, the portfolio is in dark blue. And the benchmark, the FTSE All-Share Index is in the light blue. And looking to the left-hand side of that distribution, you can see that the portfolio has relatively little in the very largest companies. So companies with a market cap of $100 billion plus often referred to as mega cap. So we've got about 8% in those companies compared to 20% in the index. Right to the far end of the page, of that chart, you can see that the portfolio's exposure to smaller companies between 0 and GBP 5 billion is much, much more considerable. Now GBP 5 billion is still in its own right, a very substantial company. So by no means are these 20 tiny, tiny companies micro cap or anything like this, is just the contrast between the mega caps on the far left-hand side. So we are different by geographic exposure, to the U.K., we're different by size to the index. We're also quite different by sector allocation, and that comes through in the next slide here where we look at the stock and sector composition of the portfolio. Showing the portfolio weight as an absolute weight and the benchmark weight there is the FTSE All-Share Index. So taking the top table to start with. It shows that OSB Group, which I'll talk about in greater detail in a moment, is the single largest portfolio weight at the moment within the benchmark within the All-Share Index, it's almost nothing, less than 0.1%. So that gives us an active weight relative to that benchmark of almost 5.9%. So the top 5 relative positions relative to the index I put out there, so OSB history is a housebuilder. Intermediate Capital is a private equity, private debt business, managing its own money and more importantly, money of large institutions. Burford Capital, I'll touch on in a moment. And Legal in general, obviously the well-known life company. At the other end of that box, it shows you those stocks, which we don't have, or only have a little exposure to relative to the index. So HSBC is one of the largest companies within the index, almost 5.4% of the index. We don't have any. Shell is the largest company in the index at [ 3% ], we've only got 3%. Likewise, we don't own Glencore, London Stock Exchange or Reckitt. So that just gives you a feel that even if a company is a large part of the U.K. Index doesn't mean by any stretch that we'll invest in it because we're much more interested in those individual companies rather than trying to benchmark ourselves against the index all the time. The top box is the individual companies and the box at the bottom just shows how that works through at a sector level. Looking at the bottom first, you can see that banks, we have very, very little exposure, even though it's 9% of the index. Oil exposure, as you can see there, we've got a little bit of share. We've got a bit of BP as well. But generally, we have very little exposure to that sector because we think historically, the returns have not been all that attractive. It's difficult to distinguish one oil company to another. One obviously hopes they don't, but they have been subject over time to having occasional disasters. They produce commodities and it's difficult to forecast commodity prices and they tend to make commodity type returns. So we think we can do better than that. So that is an intro into why we believe the small handful of companies I'm going to show today have the characteristics that might lead them to have better returns. Some of these have had very good returns in the past. One of them hasn't and we'll come to that one last. It's obviously easier to talk about successes and failures, but I think it's important to share some honesty and admit that not everything works. But sometimes, it's a matter of time. So I'll kick off just to run through the characteristics of OSB. It used to be known as OneSavings Bank. It's main products, not it's only one, but its main one is as a mortgage lender to buy-to-let professionals, importantly, not to amateur landlords at all, but their typical professional landlord to whom they lend will have a portfolio of properties, typically around 7, but often many multiples of that as well. I think that's an important distinguishing feature, of course, when considering the safety of making loans into the buy-to-let sector. It has obviously had a lot of adverse publicity recently. But the simple facts are that there's a shortage of housing within the U.K. and therefore, enormous demand for properties. And although at any one stage, because perhaps the cost of living crisis, tenants may struggle. Inevitably, there are other tenants around who may be available to take that property on. So one could see that with an individual property, landlord might be at risk if a tenant defaulted and they then had void periods at a time where they needed to make their own mortgage payments. So you can quite plausibly see how that would lead to difficulties. But with a larger portfolio, of course, that is a much diminished risk. If you have 10 properties, 1 defaulted, there's still another 9 over which to spread the extra payment to generate the cash to pay the mortgage. So lending to portfolio investors inevitably is somewhat safer to lending to individual properties, especially at least in which the mainstream banks, U.K. banks aren't really very interested in lending. They don't have the capability of the systems. It is inevitably more time consuming and complicated lending to a portfolio of properties than an individual property and hence, why most High Street banks really have little interest in this. And one can see from the bar chart on the left, the return to the half yearly returns on equity that OneSavings has generated, which has been pretty consistently around the 20%. It did dip a little bit '18 and '19, and was much, much higher when it first came to market. We don't expect those to continue, but around 20% ROE seems to be a level at which is now generating returns. It's still growing a little bit as well, although we wouldn't perhaps put too much in our forecast for growth. We do anticipate with its niche characteristics, with its strong management that there is still value in that stock as well. Going back to how we position the portfolio. So we much prefer this type of investment, which is a niche, high returning, still with some growth company to the High Street banks which have struggled to generate returns on equity even into double digits. So the return on equity here at OSB is getting on for twice that of most of the U.K. High Street lenders. We think that's an attractive proposition, currently trading at around [ GBP 4.40, GBP 4.50 ] a share. So even below its own book value despite the fact it's generating an attractive return on that equity. The second example I was going to talk through is Burford Capital, which is an innovator and a specialist in litigation finance. So the proposition here is that Burford for its own account and also for clients, it's a third-party fund manager as well. So for both itself and for others, it invests in legal claims. Simplistically, if -- and these are at a very large level. So it's for large corporates making legal claims rather than individuals. So the company may possibly have a litigation claim against another, but it doesn't want to finance that itself, clearly, a law firm taking the case on will want to be paid. Burford can assess those cases. And if it believes the case has merit and is likely to win, then it can finance it. It does that by taking a share of the winnings. It tends to be very successful in the cases that it takes on and highly, highly selective in those cases, which it select. So the vast majority of cases, it will not select. They are either not large enough or don't. There wasn't enough merit in the claim. So it's highly selective, but those -- it does take on tend to be successful. So this shows up in our risk monitoring as the largest contributor to risk in the portfolio, but [indiscernible] as you can see on the left, the share price has historically been pretty volatile. Now the volatility of that share price we would argue actually is very much driven by what's happening in the world of litigation. It responds to progress in litigation rather than 2 stock markets. So one thing we wouldn't be keen on is investing in companies which just amplify stock market moves, if they are just driven by the same things as a stock market. Whereas this company is very clearly -- its value is very driven by the results that is able to achieve from its investments in litigation claims. In particular claims here that have driven the share price over the course of the last year have been its large case against the country of Argentina. So Burford bought a number of claims for itself and for its clients, which stemmed from Argentina having re-nationalized an Argentinian oil company called YPF. It re-nationalized it in America, but it did that without paying all of the shareholders the compensation that were due. It's not legal terminology, but if one thinks of the shares just have been stolen by the Argentinian government without any compensation, that's basically what's going on. And Judge Preska found at the end of March that yes, indeed, Argentina should have paid compensation to those previous shareholders, and that was the leap in the share price at the -- right at the very end of March. In August, she made further findings as to how large that claim should have been. So we're now at the stage and it is subject to appeal, where the judge has found that Argentina should be a total claim of $14 billion to compensate all the shareholders of YPF. Burford has a large part of that, its slice of that total is $6 billion. Now one has to make some assessment as to Argentina's ability to pay, which is not high admittedly, and its willingness to pay, which seems to have gone up. They've had elections in Argentina and a new President does want Argentina to reengage, particularly with America, but with the international financial system. So he is making more positive noises. So here, we have a value occasion -- value opportunity, where there is a possibility of getting $6 billion compared to current market capitalization of just about GBP 2.5 billion. Let's say nothing for the other hundreds of financial claims that Burford is currently financing. So that certainly is a stock of potential interest. And importantly, as I said, it has very little correlation, very little link to other financial investments. And yes, it's more interesting -- well, it's certainly easier to talk about stocks which have done well in the portfolio. Here is one, which has been somewhat mired in controversy, and has not done well, more recently. So I think this is just worthy of a couple of minutes of explanation as well. So we have invested in Hipgnosis Songs Fund. We also invested in Round Hill Music as well. There were 2 opportunities in the London market to invest in companies, which owned musical intellectual property. And perhaps this is most easily thought of as they're owning the rights to particular songs, a number of very well-known songs, Mariah Carey, All I Want For Christmas, for example, would be one contained within this song. So every time that song is played, downloaded, streamed, user advert, there is a payment due to the holders of those royalties. And those royalties exist for a number of years, decades up to 70 years in some jurisdictions as well. And so we believe, as the companies did, that there should be value in those, in those rights. So they have acquired those rights commercial terms. And then their belief is that through them actively operating and controlling this rights, then you should be able to drive more value in the future as well as the recognition that their largest single revenue stream, which is streaming is growing quite rapidly. So I touched on a number of different ways song would generate income. The most common way, the largest source of their income is streaming via Spotify, Deezer, whichever platform you use. That generates 40% of their income and that element of their income is growing, not just for Hipgnosis, but in the industry generally well into double digits. So it is a fast-growing relevant source of income for them. The company has tripped itself up in a number of different ways which is clearly unfortunate. There is a new Board, which has gone in to try to rectify the issues there. But we believe that the gap between the share price, which is currently around 70p, and the asset value is now too large now. With last statement, the Board highlighted that the asset value is more than usually subjective. But as we've seen from the other company Round Hill Music, there is truly value in these companies because Round Hill, as I said, we invested in that was acquired by an industry player at pretty close to their stated valuation, which interestingly was also the same value as Hipgnosis used to value their portfolio. So the value may be subjective, but it's not to say that there isn't any value at all. And when the share price is about half of somewhat an arbitrary figure. We think even if you take quite a big haircut to that quoted asset value, there should be value in the shares. So we continue to hold the shares and to monitor it very carefully as a value opportunity. Despite the fact we are currently losing money in that investment. So we've gone back, we've reassessed -- we still believe that, that value equation is really -- and the quality of the business really is pretty good. So those are some of the individual names within the portfolio. And I think it'd just be worth a moment highlighting going back to that theme of dividend growth and how it drives value for our shareholders. So anyone who was lucky enough to have invested in the company launched in September '92 has seen a very significant increase in their dividend. They would have received 3.4p per share on the shares for that first year. That's now increased to 12.15p dividend growth of over 250% over that 30-year period. On [indiscernible], that's obviously a great absolute increase, but it's also worth, I think, comparing to CPI over the period, which shows that prices have more than doubled. But that obviously is a long way behind the rate of our dividend growth. So we've grown the dividend really pretty substantially ahead of inflation. Not each and every year, of course, inflation fluctuates rather more than we can try to control with our dividend growth. But over the long period, our dividend growth has been far in excess of CPI. Or alternatively, if one had put GBP 1,000 into the fund has launched in '92, from that GBP 1,000, the shareholder would have received almost GBP 2,400 in gross income. That's taking each dividend, not reinvesting, they would receive GBP 2,400 for each GBP 1,000 that they invested. And of course, you've got the share price as well. We still have all those shares invested. And that GBP 2,376 compared to just over GBP 1,000 from your share index. So yes, we've beaten CPI, as I showed you before, but we beat the All-Share Index as well. Dividend from the All-Share tends to fluctuate quite a lot. If you think going back over time through the crisis of 2000 TMT boom dividends from a market then fell -- also fell in '07, '08 with the financial crisis and then with COVID as well. So dividends from the market is a whole new job and change, but our own dividend to our shareholders has gone up each and every year since launch. I'll just finish before giving one or two words on the outlook. With our performance -- so this show our performance going back using the end of December, the last month end as our basis. So we had a very strong December last year. That was when the market came to realize that interest rates would be coming down at some stage, and that drove a very strong performance for November. And then in turn, that rolled through to the 1-year, 3-year and 5-year number, having been a little bit behind because of COVID and then the Russian invasion of Ukraine, which disrupted a number of our investments as well. Our performance has picked up very strongly over the last couple of months. So where do we see stock markets going from here? Well, as I touched on earlier, the base cases for U.K. equities are pretty attractively valued. Quite what will drive the value out of those, we'll make some good investments. It is always difficult to tell ahead of time, but it's a strong position to be in to have low multiples on investments. And that means a dividend yield for an investor, either in our shares or in the market more generally, will pick up a 4% dividend yield, which in its own right is pretty attractive even before you consider long-term growth. So we don't try, as a matter of principle to make any forecast either about economic growth or about stock markets. We feel that the most important thing for investors is to be invested in the market rather than trying to second guess when investors should be jumping in or out of the market, so it's very much time in the market rather than trying to time the market would be my strong recommendation there. So thank you very much for listening. And that is the end of the formal presentation. If there are any questions, I'll be very happy to answer those.

Perfect, Julian. Thank you very much for your presentation. [Operator Instructions] As you can see, we have received questions perhaps to today's presentation. And Peter, at this point, if I could just hand over to you just to chair the Q&A, that would be great, and I'll pick up for me at the end.

Certainly. Thank you very much, Julian, for the in-depth presentation. Can we just start by just giving a brief overview of the change in institution that you work for from BMO to CTI. What are the benefits or the changes that you and the team have seen over the last 2 years since the merger?

Yes. Thank you. So the most visible for shareholders, obviously, would be the name change and the company has gone through a number of name changes. It started off, in fact, as the Foreign & Colonial PEP Investment Trust. So we've come a long way. But I do have to say, in all honesty, that the move to CT has put me within the largest U.K. equity investment team that I've been in. And large, of course, doesn't necessarily mean good. But in this case, it does because the quality of my fellow investors is very high, and as well as those most closely around. There's also a separate research team as well who are looking interestingly, not just at U.K. companies, but they look on a worldwide basis. And that greater horizon does bring some very useful insights. So in a sense, change can be bad. But I think this is a case where change has been positive.

Lovely. Good. Now [ trading tax ] slightly, a question on gearing. The question is would you take on more gearing at this current stage of the market cycle to enhance returns? And if you could run through briefly what the gearing is and what it has been historically, if you don't mind?

Yes, of course. So we have the ability to borrow money. We have tended to use this fairly cautiously in the past to -- with a bit of rounding, our average gearing is sort of in the 6% to 8% range. And that's where we are at the moment. So we have a facility which allows us to borrow up to GBP 40 million to invest in stock. The cost of that gearing facility has gone up. It's very closely linked to overnight interest rates. And obviously, as the Bank of England has put up interest rates, so it costs more to borrow. There was a time where we were able to borrow for very, very little cost in 1% or certainly less than 2%. And at that point, it was very much a no-brainer to take money at that type of cost and to invest in companies where the dividend yields were much higher. So it did make very obvious sense when interest rates were incredibly low, slightly less sense now. So we do look carefully at the cost of borrowing compared to the opportunity, but there are as I was trying to say, a lot of interesting opportunities out there. We should give us returns well above interest rates. But we're also very aware that there are a number of -- considerable number of really unpleasant uncertainties out there. I guess I'm thinking most obviously of the geopolitical situation. And whilst everyone hopes that all of those issues can be peacefully resolved and/or don't spread, I think we would want to just have those in the back of our minds when deciding how aggressive it starts to take. So on valuation alone, I think I would be taking a much more aggressive view of gearing, and I would be willing to use more gearing to invest. But there are a number of more macroeconomic or geopolitical-related reasons just to bring that down. So we're staying very much in the range where we have been, and it has added value. It does enhanced returns for the shareholders. So it is a good ability. It is a good thing to have. I thought you described as being out in the sun. Being out in sunshine is good. It's good to have a sort of a light tan to be healthy to top up your vitamin D. To have too much sunshine or too much debt, can lead to nasty consequences. So I think that might be a parallel.

Okay. And we'll use that train of thought then to maybe answer another question from one of our listeners. Why would one not just invest in an All-Share tracker? I mean you could talk about the gearing, which I'm sure you will, as you just have to understand advantage and also the yield and the performance. But in your words, how would you compare the 2 are passive to an active fund?

Well, over time, we have beaten the All-Share Index. So that would be my first rebuttal. Now of course, we don't do it each and every year. We aim to, but markets are volatile and difficult to predict. So over time, we believe that an active manager should be able to beat the All-Share Index. Also, from an income perspective, as I mentioned, if you were holding an index tracker, you would have suffered cuts in those dividends as an investor, whereas we -- because of the shares we've invested in and because of our revenue reserve, we have been able to increase our dividends each and every year. So -- and as a chart showing just how big a difference that has made over time. So if one is focused on dividends and dividend growth, then the ability of this fund, and I'll be -- I'll help my competitors a little bit. I mean others have been able to do this as well. I think that is a very powerful thing for a number of investors to consider. Of course, when investing in indices, I think one also needs to think about which index you want to invest. So the question related to the All-Share Index, but then one could say, well, why would you choose the All-Share Index and perhaps not go for a European Index or an American Index. So choosing your index, your geographic region, they're all active decisions that have to be made. So in a sense, nothing is really passive. And I think once you go down the route of thinking about making an active decision, whether it's to an index or an active manager or to this index or that index, I think it shows that there is value to be had by making active decisions. This gearing as well, as you mentioned, there's also the fact that you buy investment trust typically to discount. So that gives you a little bit more. So we're trading at a 4% discount. It means that if you invest GBP 96, you actually get GBP 100 of assets working for you so that at the margin helps as well.

Certainly some advantages of the closed-end structure over open ended. And we're running up to sort of nearly time. But one final question. How does liquidity impact the investment universe you have? And does this move the portfolio towards mega caps rather than perhaps higher yield in smaller companies?

Yes, it's a very interesting question. This fund under GBP 350 million market cap, it is not large enough to have to worry about liquidity in nearly any of the companies that invest in. So we wouldn't have to be steered towards mega caps and, in fact, we're not. So we're actively away from mega caps into smaller and medium-sized companies. Right at the very, very bottom end of the U.K. Index, perhaps there would be liquidity problems, but we cannot go there. They tend to be very specialist and as a question related to not only specialists but perhaps liquidity constrained. So you might be able to invest GBP 1 million or GBP 2 million, but not much more. So at GBP 300-plus million, if we're investing 1% of the assets and that's a GBP 3 million investment and you would clearly want to make sure that not only are you able to buy it without moving the share price too much, but also cognizant that at some stage, you might want to sell it. So liquidity both in and out are important at the bottom, bottom end of the market we might perhaps find issues, but there are plenty of opportunities amongst companies with no liquidity problems for us.

And of course, it also gives us another example of the closed-end structure that means you don't have to always look to redeem share when the markets are maybe struggling a little bit?

Thank you. Yes, that's a very good point, yes. So both on inflows and outflows as a closed-end fund, we don't have those, except to the extent we want. So if you want to issue shares, that would count as an inflow, but in all honestly, the amount we're doing there is relatively small. And like what share buybacks, we do -- and we have been active in buying back shares. But that's a pretty small amount of the company's capital that we use for buybacks. So those -- because of our close-end nature, we are pretty close to being fixed in terms of our size. Yes, so we don't need to manage inflows or outflows. And that is a positive advantage over an open-ended fund.

Sure. And I think we'll finish on one final question. With such a strong track record of dividend growth, how focused are you on that versus balancing with growth of the portfolio? So basically, you say capital versus income balance within the portfolio, how do you manage that?

It's a very good question. And the answer, and I've wrestled with is probably longer than I should and the answer is quite obvious in the end. If you don't have capital growth it's very difficult to achieve income growth. So if we think a different scenario, there would be one scenario and this isn't us, where you're unable to grow the capital but you want to increase the dividend. So kind of mixed metaphors, I'm sure. But if you got your portfolio like a lemon, you just have to squeeze it ever harder to get the dividend out of it. That really isn't a long-term solution. You might be able to do it for 1 year or 2, but inevitably lemon would run dry. The answer, of course, is that actually, you need capital growth in order to drive income growth. And it's difficult to have income growth without capital growth because otherwise, you're having to squeeze ever harder. You need to drive to buy stocks with ever higher dividend yields and inevitably, that can lead you into income traps. Companies, which appear to have very high dividend yields, but actually, they cut the dividend or the share price is sort of the weakness in the share prices are prewarning. So it is slightly important to keep that capital growth. And perhaps one way of illustrating just to refer back to these companies [indiscernible]. OneSavings Bank, OSB, has grown the share price, its own capital has grown very significantly over time. And yes, it has a very high dividend yield, but actually that is completely covered by its own earnings. Burford really doesn't have much of a dividend yield. That's about a 1% yield, which is pretty low for our portfolio. But we hold it primarily because we believe there is capital growth to come. And Hipgnosis, we did hold it because it had an attractive dividend yield. In fact, the dividend pending a review of the value of the assets has been put on ice. So we're not currently getting any dividend from that, but we continue to hold it because we think that the asset value, the capital growth opportunity is quite considerable. So if there are stocks within the portfolio without any dividend, and there are stocks with attractive dividend yields. So it is very much a balance. But yes, we strongly believe you have to get capital growth in order to drive the income growth. It's not the other way around.

So rather squeezing the lemon dry, you just grow more lemons.

Grow more lemons.

Thank you very much, Julian, for your time and presentation and answer to my questions. Thank you to the viewers and listeners for submitting the questions. And if you got any further questions or comments, please get in touch with us, and I'm sure I'll be able to respond to you. And with that, I'll pass it back to Alessandro.

Perfect. Julian, Peter. Thank you very much for answering those questions from investors. And as Pete said, the company will review all the questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But just before redirecting investors provide you with their feedback, which I know is particularly important to the company. Julian, can I just ask you for a few closing comments?

Well, to conclude, thank you very much, everyone, for joining in, and thank you, particularly for the questions at the end. And I hope people you've found it informative. If there's anything else that occurs to you, please ask either Peter or myself. I'm sure you can find our details online, and we'd be very happy to get back to you. So thank you very much for your attention today. Thank you.

Thank you once again for updating the investors today. Could I please ask investors not to close this session, as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This won't take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of CT UK Capital and Income Investment Trust Plc, we'd like to thank you for attending today's presentation. And good afternoon to you all.