Investing in Canadian General: a worthwhile decision?
Canadian General Investments (LSE: CGI), a £757 million investment trust, has been one of the best-performing funds in the investment trust sector over 25 years. With a focus on a medium- to long-term timescale, the trust has returned 192% over the last 10 years and 85% over five years.
Greg Eckel, the lead fund manager of Canadian General Investments, is cautious in the short term, predicting a market pause due to high interest rates and a slowing economy. However, the trust's long-term prospects are promising, particularly in the context of Canada's favourable long-term outlook.
Canada, with a population around the size of California, boasts a larger land mass than North America's United States. The country has a favourable long-term outlook, with federal debt barely 40% of GDP, the lowest marginal effective tax rate in the G7, and foreign investment flowing in. Canada is expected to do well in another bull run for raw materials, particularly with the nuclear renaissance and interconnectivity with the US.
Approximately 11% of Canadian General Investments' portfolio is in materials, including Franco-Nevada (gold mining) and Cameco and NexGen (uranium mining). Similarly, approximately 14% of the portfolio is in energy, including Precision Drilling and Canadian Natural Resources. The trust also has a high exposure to technology (21% of the portfolio versus 9% in the Toronto index), but little to financials (13% vs. 31%).
The Armstrong family currently holds more than half of the shares of Canadian General Investments. Nvidia was the largest holding of Canadian General Investments as of 30 April 2024, worth 7.1% of the portfolio. Apple and Amazon are in the top 10 holdings of Canadian General Investments at 3.1% and 2.7% of the portfolio respectively.
The CGI portfolio is "more expensive" due to the high exposure to US holdings and the low exposure to telecommunications and utilities. However, the combination of an excessive discount to net assets and good long-term prospects makes Canadian General Investments a trust to consider.
Realized profits from Canadian General Investments are subject to corporation tax unless distributed as dividends. A debt facility of C$175 million enables a ratio of debt to net assets of 12%, at the low end of the historic range due to an interest rate of 5.9%.
Inflation, excluding mortgage costs, has fallen from 8% to below 2%, indicating that interest rates may fall. GDP growth in 2023 was 1.1%, but is expected to pick up next year.
Despite the short-term cautiousness, Canadian General Investments remains a compelling choice for investors seeking long-term growth opportunities in the raw materials sector, particularly in the context of Canada's favourable long-term outlook.
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