The Canadian General Investments exchange-traded fund is one of only two available to UK investors that specializes in Canadian shares. The other is Middlefield Canadian Income. Although a little too specific for some investors (including big wealth managers), the £429m fund has a pretty impressive track record of performance.
Over the past one, three and five years, it has delivered positive returns of 2, 29 and 66 percent, outperforming both the average of its North American peer group and the Middlefield fund (over one and five years).
It has also provided shareholders with a steadily increasing stream of dividends. In the financial year ending December 31, 2022, it increased its dividend (paid in quarterly installments) by 4.3 percent as part of a long-term strategy to continue increasing payouts. The income is modest, equivalent to about 2.9 percent annually, but very welcome.
The fund is managed by the investment house Morgan Meighen & Associates, based in Toronto, Canada. Greg Eckel, the head of the fund, has overseen the portfolio since 2009. Eckel’s strategy is based on identifying companies that the fund can hold over the long term. The current top ten holdings have been owned for an average of ten years.
“We like to buy companies that stand the test of time,” says Eckel. Among its oldest holdings is the Canadian company Franco-Nevada, which invests in gold mining businesses in exchange for a share of future revenues, commonly known as royalty payments.
“We bought it in 2006 and it’s the granddaddy of royalty payments for gold investments,” Eckel says. “It has proven to be a great investment for us and remains a key component of our portfolio.”
Eckel manages the fund according to a set of “soft and hard” rules, aimed at ensuring a diversified distribution of investments. For example, if a new position is taken in a company, it must represent at least one percent of the fund’s assets. If a share falls below 0.5 percent, it is discarded.
While successful investments can grow up to a maximum of ten percent, Eckel typically begins taking profits once they grow beyond five percent, using the profits to buy stakes in new businesses. Among the latest new holdings is a position in Precision Drilling, a Canadian builder of oil and gas drilling rigs.
Although the fund is primarily invested in large Canadian tradable stocks, a maximum of 25 percent can be invested in U.S. stocks. Currently, 24 percent of assets are in US stocks, including technology company Nvidia, the fund’s largest position at 6.9 percent. “We bought Nvidia in 2016, when it was one percent of the fund,” Eckel says. “We have been making profits every year since then.”
Eckel says U.S. holdings tend to be in business sectors where the Canadian stock market is underrepresented. “For every 1,000 US stocks we analyze, only one will meet our investment criteria,” she adds. Key bets in the United States include Apple, Mastercard and Nvidia.
Despite strong performance figures, the fund has gained little appeal among UK wealth managers who prefer to gain exposure for their clients in North America through conventional US investment funds.
Jonathan Morgan, who along with his sister Vanessa sits on the fund’s board (both are also directors of Morgan Meighen), admits that the fund remains in the shadows. “It’s a shame,” he says. “Although Canada is a G7 country and is home to some fantastic companies, it is overshadowed by its neighbor to the south.”
The fund’s stock market identification number is 0170710 and its market symbol is CGI. Annual charges total 1.38 percent.