Ian Cowie: out-of-form investment trust I’m backing to bounce back

Our columnist bought this trust a year ago, but it has got off to a slow start, making it a ‘Cowie Clanger’. Here he explains why he chose it over its rivals.

How do you fancy joining Warren Buffett for a ride on the railways of North America, plus some professionally managed exposure to timber and gold, the world’s biggest technology company and a copper miner?

Better still, this investment trust is currently trading at an eye-stretching discount of 32% below its net asset value (NAV). In addition, combined dividend income of 2.7% is on offer.

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Before you get too choo-choo excited, I had better admit straightaway that this share - which I bought a year ago - currently sits in my list of shame, otherwise known as ‘Cowie’s Clangers’, because its share price has fallen by 10% or more since I invested. But it is early days yet and I remain determined to hang on for the ride and intend to buy more shares when cash allows.

To be fair, I can’t really blame Canadian General Investments Ord GBP (LSE:CGI) for the fact that I bought shares at what proved to be the wrong time over the very short term. Last November, when I paid £24.39 for shares that cost £22 this week, turned out to be just before the North American technology boom hit the buffers, with rising inflation and interest rates shunting formerly fashionable growth stocks into the sidings.

That hit CGI’s top 10 holding in the online retailer Shopify (TSE:SHOP) very hard, when this ‘jam tomorrow’ stock which pays no income today saw three-quarters of its value wiped out over the last year. Shopify no longer features in CGI’s top 10.

More positively, at least from the point of view of this investor who seeks long-term capital preservation with hopes of growth in future and some income to pay us to be patient today, CGI continues to offer me diversified exposure to several commercial sectors in which I am keen to participate.

For example, its most valuable holding is in Canadian Pacific Railways, which has chugged nearly 25% higher over the last year to trade at a one-year high. Soaring energy costs and greater demand for sustainable commerce have brought this distinctly 19th-century form of transport back into favour as an environmentally friendly and economically efficient way to shift heavy stuff over long distances.

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That’s why Buffett’s Berkshire Hathaway bought what used to trade as the Burlington Northern Santa Fe Railway and is now known as BNSF. The Sage of Omaha has said that railroads will be essential to the future of the North American economy, and who are we to argue?

That still leaves huge swathes of the continent that cannot be reached by train. CGI’s fifth most valuable holding is another transport business, TFI International(TSE:TFII) which is a road haulage business that stretches from Canada to Mexico.

West Fraser Timber Co.Ltd (TSE:WFG), gives self-descriptive exposure to a basic commodity which is difficult if not impossible to access via most stock exchanges, and is CGI’s second-biggest holding. Franco-Nevada Corp (TSE:FNV) is a gold royalties business that ranks third in this Canadian dollar $1.2 billion (£750 million) portfolio.

Apart from the technology giant Apple (NASDAQ:AAPL) in fourth place, which I continue to regard as the most robust of the big tech stocks, despite the ongoing stock market rout in this sector, the other top 10 holding that caught my eye is First Quantum Minerals (TSE:FM).

This is a Canada-based copper miner - which should do well out of the global switch towards electric vehicles that typically require nearly three times as much of the conductive metal than traditional internal combustion engines. First Quantum Minerals also has global exposure to nickel, needed for batteries, gold and silver.

How has this mixed bag of assets performed? CGI has shrunk shareholders’ assets by 20% over the last year (so sterling’s weakness seems to have shielded me from some of the suffering so far) but delivered total returns of 68% over the last five years and 225% over the last decade, according to independent statisticians Morningstar.

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To put that in context, the Association of Investment Companies (AIC) all companies ex-venture capital trusts’ equivalent total returns are a loss of 16%, and gains of 35% and 187%. Meanwhile, the current top-performer in the AIC’s ‘North America’ sector over the last year is North American Income Trust (LSE:NAIT), which achieved positive returns of 16%, 49% and 230% respectively, while yielding 3.2% income and trading at a 9% discount to NAV. 

North American Income is followed by Middlefield Canadian Income (LSE:MCT) and BlackRock Sustainable American Income (LSE: BRSA), which both sustained positive returns over all three periods, including the last very difficult year, while yielding 4% and 3.9% dividend income respectively.

However, none of the others offers the same widely diversified underlying portfolio of businesses that I find attractive in CGI, which can also boast a trading history that stretches all the way back to 1930.

So this investment trust survived the Great Depression and the Second World War - not to mention many stock market shocks since then - and I continue to hope for a return to form.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL) and Canadian General Investments (CGI) as part of a globally diversified portfolio of investment trusts and other shares.