Canadian General: A Pure Play On Canada

by: Robert Lewis

Canadian General Investments Limited is a closed-end fund trading on The Toronto Stock Exchange and The London Stock Exchange under the symbol CGI. (You can buy the shares from most brokers even though it is listed on The Toronto Stock Exchange.) The fund was established in 1930 and has been managed by Morgan, Meighen & Associates since 1956. It invests primarily in Canadian companies. As of March 26, 2012, it sold at a 25.52% discount from net asset value. It has been trading a this discount for many years.

A $10,000 investment in CGI common shares would have grown to nearly $88,000 over the 25-year period ending December 31, 2011. This equates to a compound annual average growth rate of 9.1%. By comparison, a $10,000 investment in the benchmark S&P/TSX Composite Index would have grown to over $72,000 or a compound average annual growth rate of 8.2%. For the 50 years ending December 31, 2011, a $10,000 investment in CGI would have grown to $1,800,000, representing a compound average annual return of 11%. The values of the benchmark for the same period were $800,000 and 9.2% respectively.

Third Canadian General Investment Trust, which is owned by Jonathan A. Morgan and Vanessa L. Morgan, own 36.57% of the outstanding shares of CGI. The Morgans are the President and Chairman, respectively, of CGI. They have their money where their mouths are.

CGI is a leveraged fund with $570,735,000 in gross assets of which $150,000,000 or 35.3% consists of preference shares.

Expense ratios are hefty and portfolio turnover is relatively stable, as follows:

Expense Ratio Portfolio Turnover
2011 3.02% 22.32%
2010 3.23% 29.51%
2009 3.82% 41.54%
2008 3.57% 27.33%
2007 3.04% 36.68%
Click to enlarge

Recent performance over the past 10 years has been as follows:

Net Asset Value Market price S&P/TSX Composite Index
1 year (11.7%) (12.3%) (8.7%)
3 year 18.4% 27.1% 13.2%
5 year (4.7%) (6.0%) 1.3%
10 year 8.4% 10.7% 7.0%
Click to enlarge

Geographic distribution of the portfolio was as follows:

Canadian Equities 92.7%
Foreign Equities 06.7%
Cash 00.6%
Click to enlarge

Sector allocation was focused on energy and materials, which is what Canada does. Percentage allocations were as follows:

Energy 26.0%
Materials 21.8%
Financials 19.5%
Consumer Discretionary 09.4%
Industrials 07.4%
Information technology 07.4%
Telecommunications Services 03.4%
Utilities 03.0%
Consumer Staples 00.8%
Health Care 00.7%
Cash 00.6%
Click to enlarge

As would be expected from a fund that has done well, CGI's cost for securities was $370,985,000, which had a market value of $567,052,000. This is very substantial unrealized appreciation.


If you wish to invest in Canada, I suspect that this is the way to do it. Expenses are high but they have done well. You can buy shares from most brokers even if they are listed on The Toronto Stock Exchange.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.