This time last year, I made my pick for our Motley Fool ‘Top UK shares for 2020’ feature. The stock I chose was FTSE SmallCap-listed Capital Gearing Trust (LSE: CGT).
Today, I’m going to discuss four things. First, why I picked CGT. Second, how the company handled what has been one of the most extraordinary years. Third, how its shares have performed. And finally, whether I’d buy the stock for 2021.
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Why I picked CGT as my top UK share
Here’s what I wrote in the article this time last year: “I’m making [CGT] my top buy for 2020 not because I’d expect it to make the biggest gains if we have a raging bull market. It won’t. Not with little more than 30% exposure to equities, and substantial holdings of cash and lower-risk assets, such as index-linked government bonds. However, this positioning offers relative downside protection — as well as the potential to pick up equities at dirt-cheap prices — in the event of a bear market. As such, I see Capital Gearing, which has a long history of steady, lower-risk returns, as a top buy for whatever 2020 brings.”
I can claim no prescience of the Covid-19 pandemic. All I knew was that, after a record bull run in equity markets driven by a decade of extraordinary asset-inflating low interest rates and money-printing, there was an elevated risk we were looking at a bubble in search of a pin. And one thing we know from history is that a bubble will invariably find one — typically in an unexpected quarter.
In picking CGT as my top UK share for 2020, I was merely being mindful of the great Warren Buffett’s advice to “be fearful when others are greedy.”
As I mentioned, CGT came into 2020 with little more than 30% exposure to equities. It had sold or trimmed a fair number of holdings on valuation grounds. I noted its positioning gave it the potential to pick up equities at dirt-cheap prices in the event of a bear market. And this is what it did. As of 30 November, equities accounted for 48% of its portfolio.
I’d say CGT has done a very good job of navigating the extraordinary turmoil of 2020. And the performance of its share price reflects this.
Smashed the wider market
At the time of our Top UK shares for 2020 article, the CGT share price was 4,310p. It bottomed at 3,810p (down 12%) in March. This compared with a crash of 32% for the FTSE All-Share index.
Today, the CGT share price is 4,660p, up 8% since I tipped it for 2020. A decent performance in absolute terms (in line with its annualised return over two decades), and a very strong performance against the index, which is down 8%.
My top UK share for 2021?
I’ve always maintained CGT is a good stock for adding some defensive robustness to a portfolio. Or for investors wanting exposure to the stock market without going ‘all-in’. But is CGT my top UK share for 2021?
Markets have rallied strongly from the crash, but my concerns about interest rates, money-printing, and corporate debt remain. As such, I’d be happy to buy asset-prices-conscious CGT today, even though it’s not my top UK share for 2021. I think there are a number of other stocks — particularly in the UK market — currently trading at attractive valuations.