Avoid market volatility by investing like a tortoise rather than a hare

The portfolio manager at CG Asset Management, Hassan Raza, lists his top three investment firms

Through a portfolio of bonds, stocks, and commodities, Capital Gearing Trust is an investment firm that seeks to protect against inflation and preserve wealth. Our goal is to accomplish this over a 12-month period with minimal volatility and without suffering financial losses. From 1982 to the global financial crisis (2008-2009), the .com crash (2000), and the Covid pandemic (2020), the company has generated a 14 percent annualized net asset value (NAV) per share.

This performance has been greatly aided by our equity holdings in the investment-trust sector, and as discounts have expanded, so have the opportunities available in this sector. Many investment trusts (ITs) have share prices that are below their net asset value (NAV) per share. For example, some of the companies we own allow you to purchase popular stocks, such as BP, at 90p in the pound, which is a 10% discount. It has a double-edged effect, though, because the discount might increase even more.

Our investment approach looks for companies that are offering attractive discounts, where we think the discount will narrow on its own or with some assistance from us.

Three samples from our portfolio are shown here.

Appealing savings.

Watch for a discount opportunity in the mid-market Japanese equity trust Fidelity Japan Trust (LSE: FJV), which has pledged to keep its discount to one digit. Since most investors are enthralled with AI, it's easy to forget that, as of last year, 1,034 regulations in Japan still required the submission of government documents on floppy disks. There is a lot of space for reform to strengthen Japanese corporations with conservative management. In an effort to bridge the gap, the Tokyo Stock Exchange is pressuring businesses to increase returns or risk public criticism. Unlike the US, where valuations are extreme, the Japanese yen appears incredibly cheap. For investors based in sterling, both elements ought to improve potential returns.

In our opinion, valuations in the UK markets appear appealing. A manager with a strong track record of long-term success oversees the Finsbury Growth and Income Trust (LSE: FGT), a concentrated portfolio of high-quality growth stocks in the UK. It has repurchased 30% of its shares in the last two years in an effort to reduce the discount to less than 5%, which has significantly increased shareholder returns.

The HICL Infrastructure (LSE: HICL) is also worth investigating. With the support of primarily inflation-linked, government-backed contracts, we think this group of roads, schools, and other vital infrastructure assets can provide dependable and alluring risk-adjusted returns of more than 9% over the course of the next 15 years. The chance to purchase these assets below NAV offers an extra degree of security, and there may be benefits from quicker divestitures (at least 14% of HICL's portfolio to date) and acquisitions. Foreign investors are already snatching up cheap assets, as evidenced by the Canadian pension fund BCI's recent acquisition of BBGI Infrastructure, a comparable holding in our portfolio.

Inflation is likely to be higher in a world with trade wars, a sick labor force, and high, wasteful defense spending. Meanwhile, increased economic and political unpredictability is causing business investment to stall. Thus, global equity markets appear brittle and susceptible to a downturn. We believe our history shows that investors can avoid the most severe market excesses and continue to compound at low-volatility, appealing returns.

We prefer the tortoise to the hare.