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AIC Ian Sayers

AIC introduces additional gearing figure

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The Association of Investment Companies has enhanced the investment company gearing (borrowing) data for member companies. 

For data from 31 January 2010 the AIC has published two gearing figures, a gross gearing figure and a net gearing figure, which takes account of cash and cash equivalents in the company’s portfolio. 

Previously the AIC published gearing figures for member companies that reflected the value of borrowings (prior charges for example, bank loans, long term debentures) drawn down by an investment company with no adjustment for the investment company’s holdings in cash or cash equivalents. This figure will now be referred to by the AIC as gross gearing.

The AIC has now reviewed its gearing methodology and has introduced an additional gearing figure. This gearing figure takes account of cash and cash equivalents which the manager may be holding within a portfolio, giving investors a better understanding of the impact of active gearing within an investment company’s portfolio. This figure will be referred to by the AIC as net gearing.

Ian Sayers (pictured), director general of the AIC, says: “We believe this change to our data will help investors understand more fully the impact of gearing on their investment company’s portfolios. Gearing is a unique feature of investment companies which over the long-term can enhance performance. It is important to recognise the impact of gearing as it works by magnifying the company’s performance. This means gearing boosts performance when it is strong, however, the reverse can be true and gearing can be an additional drag on performance when it is poor.” 

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