Investing in Canadian General: Worth the Purchase?
Canadian General Investments (LSE: CGI), a London and Toronto-listed £757 million investment trust, has been performing exceptionally well, outpacing the Toronto Stock Exchange. The company, which focuses on a medium- to long-term timescale, has returned 192% over the last 10 years and 85% over five years.
Based in Canada, the investment trust is managed by Greg Eckel, who takes a cautious approach in the short term due to high interest rates and a potential market pause. This strategy has proven effective, as Canadian General Investments' performance is well ahead of the Toronto Stock Exchange.
The portfolio is diverse, with around 14% in energy, including Precision Drilling and Canadian Natural Resources. There is a high exposure to technology, making up 21% of the portfolio, but little to financials. Apple and Amazon are among the top 10 holdings, accounting for 3.1% and 2.7% of the portfolio, respectively. Nvidia was the largest holding on 30 April 2024, worth 7.1% of the portfolio.
The portfolio also includes 11% in materials, specifically gold mining (Franco-Nevada) and uranium mining (Cameco and NexGen). This focus on natural resources aligns with Canada's rich endowment in these sectors and its population, which is around the size of California.
Canada's federal debt is low, at barely 40% of GDP, and inflation, excluding mortgage costs, has fallen from 8% to below 2%, suggesting a possible decrease in interest rates. This favourable economic environment, coupled with Canada's larger land mass than North America's United States, positions the country well for another bull run for raw materials, particularly with the nuclear renaissance and interconnectivity with the US.
The Bronfman family controls the management company of Canadian General Investments and holds approximately 20% of the shares. The company's market trades on a multiple of under 15 times trailing earnings, less than the US, but this is partly due to low ratings of banks and commodities companies. A debt facility of C$175 million enables a ratio of debt to net assets of 12%, with an interest rate of 5.9%.
Realised profits from Canadian General Investments are subject to corporation tax unless distributed as dividends. With GDP growth expected to pick up in the next year, with a rate of just 1.1% in 2023, investors may find Canadian General Investments an attractive option for long-term growth in the Canadian market.
