Gearing

Put simply, gearing is when an investment trust borrows money to make further investments. If markets rise in value, the trust can pay back the loan and retain the profit. Of course, if markets don’t improve as anticipated, the trust may not be able to cover the borrowing and interest costs, and will make a loss. The greater the gearing, the greater the potential profit or loss.  

Managing gearing

Investment trusts have ways to manage long term gearing to alleviate some of the risks and to help conserve capital. Borrowings do not always have to be invested in equities. When the manager believes the outlook for equity markets is deteriorating, shares can be sold and the borrowings held either as bonds or in cash.

Monks' level of effective gearing is 88% of shareholders' funds, at 31 December 2011.

Effective gearing is defined as gearing as a percentage of shareholders’ funds after the deduction of cash and bonds graded BBB or higher that are redeemable within one year. The figure is adjusted for changes to levels of market exposure brought about by the use of derivatives (including futures and call options).  This figure therefore includes exposure to fixed interest investments which may have equity like characteristics and it can be taken as representing the level of exposure to investment markets.
 

If you would like to compare this trust's gearing to the gearing of any of the other investment trusts we manage, simply check the boxes to select a trust.

 Scottish Mortgage Investment Trust PLC

 The Scottish American Investment Company P.L.C.

 Edinburgh Worldwide Investment Trust plc

 Mid Wynd International Investment Trust PLC

 The Baillie Gifford Japan Trust PLC

 Baillie Gifford Shin Nippon PLC

 Pacific Horizon Investment Trust PLC