Well yes and no. Markets, like economies, fluctuate. Gearing can be like sailing at full sail: wonderful with the wind behind you but not great when you’re trying to navigate against it.
Trusts with gearing, of course, will tend to perform better when the markets are rising. But debt is frequently fixed term and cannot be paid back on a whim.
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Managers tend to be natural optimists and those charging fees on gross assets have a vested interest in borrowing as much as possible.
Thus gearing is an important criterion when picking investment trusts.
Jim Wood-Smith is head of research at Hawksmoor Investment Management
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