‘American recession can’t be more than a year away’

In troubled times investors typically concentrate on preserving their existing assets rather than chasing high returns. With fears that another downturn is on the way, many are now preparing themselves for the worst.

Through the dotcom bubble of the late Nineties and the financial crash of the decade that followed, the Capital Gearing Trust delivered positive returns for investors. The £427m trust currently trades at a 2.5pc premium, meaning that its market price is higher than the value of its assets.

The manager, Peter Spiller, tells Telegraph Money why he believes an American recession is on the horizon,

which types of property offer the best value to investors and how quantitative easing, the printing of money by central banks, has warped the markets.

It is suitable for people who are investing for the long term, prefer capital gain to income and have an aversion to losing money.

Since I became manager of the fund in 1982 we have had only one year in which we made a loss: 2014, when the fund fell by 2pc. Given the number of years in which stock markets have fallen, I find that very satisfactory.

There are a lot of funds that use very complicated strategies, such as investing in “derivatives”, but we take the view that investment is quite simple. Trying to be clever usually involves making judgments about the short term, which we eschew. When I took over, investors could expect to make 16pc a year in real terms, and that meant we were invested mainly in stocks. Risk was low because companies’ debts had been purged by high inflation in the Seventies. Interest rates were high but falling. It was an ideal background.

By 2000 the tech bubble meant that opportunities were constrained because companies were overvalued, but bonds were still attractive. However, since the financial crash quantitative easing has distorted the price of all financial assets. One needs to be very careful.

Today the bond markets show you the world economy is very sick indeed. A third of global bonds offer negative returns and our models suggest that the returns on stocks will be very poor over the next few years.

The sad thing is that there is very little that offers good value and low risk and therefore we are extremely defensive. We have very short-term bonds and lots of cash at the moment. The only exception is “treasury inflation-protected securities” ( Tips). These are the American equivalent of British index-linked gilts, but they offer positive yields as opposed to the negative returns offered by gilts.

We can’t be sure that America is going to go into recession imminently, but it’s unlikely to be more than a year or two away. We believe the reaction will have to be very radical, something equivalent to quantitative easing but not in the same form. Instead it would be putting money directly into the economy in terms of investing in infrastructure or a “helicopter drop”, effectively just giving people Grainger is the market leader in the private rented sector and is one of our biggest holdings.

The firm is well run and, while we were extremely disappointed that it issued more shares last year, the quality of its assets is extremely high and it operates in a responsible

way. We think Grainger will produce a reasonable return – in real terms – over the next few years, in contrast to the market as a whole.

money. Either would be inflationary. Tips provide protection against high inflation and we now have a quarter of our assets invested in this way.

We have strong views about which parts of the property market we want to be in. For example, we haven’t owned any retail units or offices for a long time, but we like student accommodation, logistics sites and private rented houses.

As well as Britain, we previously had a big exposure to German residential property. However, in the past six months we’ve had the controversy £1,000 invested in 1982 would be worth £209,920 today We generally avoid individual stocks, and the worst mistake was when we bought CATCo, an American insurance company. It had a terrible year, which would usually be followed by increasing premiums and higher returns. It didn’t work out that way.

The company ran into all sorts of storms last year and that was disastrous for us. Fortunately it was a small holding that didn’t affect our overall performance.

I have 300,000 shares in the trust [now worth £13m]. That’s been wonderful because the price has gone up hugely since I started. I probably would have trained race horses. I was brought up on a farm and we had lots of horses, and I still own some. I love the racing world.

www.telegraph.co.uk/funds