CTY + JGGI AGMs and Market Trends

Yesterday saw a big improvement in my stock market portfolio valuation (up over 2% on the day). That makes a change from recent trends. Even some of the property REITs I hold picked up despite bank rate being unchanged.

In the last year I have been buying shares in BP and Shell on the basis that oil and gas will still be required for many years to come. This proved to be a big mistake on Tuesday when the share price of BP dropped by over 4% on results that were way worse than forecast. Shell did rather better later in the week but is it not very disappointing that analysts are unable to accurately forecast so much as a quarter ahead for such large and well researched companies? I am still in profit on my BP holdings but I will clearly have to review them.  

I attended the AGMs of City of London Investment Trust (CTY) and JPMorgan Global Growth and Income Trust (JGGI) this week. These were both “hybrid” meetings so I attended on-line. I’ll only cover them briefly as there were no surprises. CTY achieved a total return of 4.6% last year which slightly underperformed their benchmark. But they now have a 57 year record of dividend increases. I have held the shares since 2011 with limited trading in the meantime. Overall return has been 10.9% per annum which I consider satisfactory for a share I don’t need to constantly monitor and an on-going charge of only 0.37%. However stock selection last year had a negative impact.

They hold BP and Shell but sold BHP last year and bought Glencore instead. Long standing manager Job Curtis does not yet see a turning point in property.

The JGGI AGM was held in Edinburgh (they plan to alternate location) after the merger with Scottish Investment Trust. This was said to be “a transformational year” as the size of the trust has tripled due to the mergers and strong investment performance. They achieved a total return of 19.1% last year. Their aim is for long-term capital growth combined with a yield of 4%.

Their biggest holdings are companies like Amazon, United Health, Microsoft, CME, Coca-Cola, TSMC, Vinci, Uber and Mastercard and they have been buying Nvidia.

Questions were raised about them paying dividends out of capital, i.e. uncovered by earnings. But I see no problem with that as most of the profits arise from capital growth. But there were negative comments though from the lack of a resolution to clearly approve the dividend policy. I think they should improve that resolution next year.

Both the CTY and JGGI AGMs were useful events in terms of understanding the investment strategies and I am happy to continue holding the shares.

Lastly a postscript on the conviction of Sam Bankman-Fried (see previous blog post). Is it not astonishing that the SEC managed to prosecute and secure this conviction in just a few months when the FCA takes years to secure fraud convictions in the UK? The FTX bankruptcy filing took place in November 2022. There is clearly a much more effective legal framework in the USA to pursue, and hence deter, financial fraud.

What could have been a horribly complex legal case was dealt with quickly and efficiently in the USA.

Roger Lawson (Twitter https://twitter.com/RogerWLawson  )

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Earthport Accounts, City of London IT and Patisserie

Earthport (EPO) is the latest AIM company to report that its past accounts are not all they should have been. Following a review by the new CEO and CFO, it seems there have been errors in reporting of forward foreign exchange transactions. This will result in fair value adjustments and a reduction of £6.3 million to £16.6 million in the net assets of the group at June 2017. Likewise adjustments are required to previous years. Reported earnings are also reduced although there is no cash impact.

This is a payments business which has been consistently loss making despite growing revenue. The former Chairman and CEO (who was still on the board as a non-exec director) have departed “with immediate effect”. This is surely yet another case of audit failure. Who were the auditors? Answer: RSM. But it’s worth reading their audit report in the 2017 Annual Report where they highlight some problems in the same area.

I do not currently hold shares in Earthport and this latest news is hardly likely to inspire confidence in the company from investors. After many years, the company has not proved it has a business model that can generate any profits.

Pressure of business meant I missed attending the City of London Investment Trust (CTY) Annual General Meeting on the same day as the Patisserie General Meeting. This is one of my most boring holdings as it’s mainly invested in large cap UK companies. But no problem in not attending the AGM in person because there is a recording of it available here: https://www.janushenderson.com/ukpi/content/trustslive?o_cc=c3926 . That even includes the question/answer session which was omitted in a previous year. If you watched it while it was taking place you could also submit questions. This approach is to be highly commended.

The interesting comment I noted from fund manager Job Curtis was that they had recently put more money into the market and were gearing up. He clearly perceives there are value opportunities in the market after recent declines. Others seem to agree with him because the market is now picking up.

Just one postscript on the Patisserie (CAKE) General Meeting. Lombard in the FT (Matthew Vincent) questioned this morning whether placings were the only option. He suggests the company could have delayed and done a rights issue. This is basically the same issue that was raised at the Meeting by some shareholders. But it’s very unrealistic to suggest that was a viable option. In reality I think the appetite for a rights issue would have been very low because of the lack of financial information on the current position of the company. I certainly would not even have participated in the placing! Undertaking a rights issue when there was great uncertainty about the level of support would hardly have been recommended by any advisors. In addition it would have taken a lot longer to do that than it took to do the first placing. Time is of the essence in the circumstances the company faced and looking for bankers to fill the delay hardly looks realistic to me either.

I suggest Luke Johnson took the only reasonable steps available and he should be thanked for saving the business. Shareholders should be very glad that the company did not get stuffed through a pre-pack administration which is what I rather expected would happen, in which case they would have lost everything.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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On-Line AGMs and City of London IT

I mentioned in a previous article the growing concerns about the use of “virtual” Annual General Meetings (AGMs) in the USA. There are not many on-line AGMs yet in the UK but yesterday there was a good example at the City of London Investment Trust (CTY). I actually had to complain to the company last year about the defects when I attempted to attend it on-line rather than in person – it did not work on the day, plus a later recording that was available had all the Q&A part cut out.

This year it was better, but a long way from perfect. Parts of fund manager Job Curtis’s presentation could not be heard. But at least it gave shareholders the opportunity to attend in person, or attend on-line. Questions could be submitted on-line.

Here’s a brief report on the company and the AGM:

The City of London IT is probably the most boring holding in my portfolio. It invests mainly in large cap UK listed companies. Top ten holdings are British American Tobacco, Royal Dutch Shell, HSBC, Diageo, Unilever, Vodafone, Prudential, GlaxoSmithKline, Lloyds Banking Group and BP, totalling 32% of the portfolio. It’s in the “UK Equity Income” sector for trusts. So you can see it’s not going to be any racehorse as these are quite defensive stocks. However the performance over many years has been good and it tends to outperform its benchmark. Not last year though where it underperformed the benchmark but still managed to achieve a total return of 14.5% (All-Share was up 18.1% for example with growth and smaller cap stocks more in fashion in a buoyant market). The current yield is 3.9%.

Here’s a few comments from fund manager Job Curtis from his presentation who has been with the fund management company (Henderson) for 26 years. He mentioned the fact that dividends have grown every year for more than 50 years. They manage this by keeping some cash back in revenue reserves in good years, which are then used to pay dividends in the bad years.

They use gearing and last year moved up the gearing to 7% by taking advantage of the very low interest rates – they are now borrowing at 2.4% over 32 years. (Note: have mentioned before how astonishing it is that such trusts can borrow at rates lower than inflation and for long periods).

Job Curtis said their on-going charge figure was now 0.42% which is the lowest in the equity income sector.

Positive contributors to performance last year were housebuilders (they hold three – Persimmon, Taylor Wimpey and Berkeley) and pharmaceuticals (Glaxo and AstraZeneca, but they also hold Merck, Johnson & Johnson and Novartis). They also benefited from a below average exposure to oil and gas producers. Detractors from performance were banks, mining companies and a holding in Provident Financial which they have now sold.

There were few questions in the Q&A session (a good indication that shareholders are happy), and you can hear those and the rest of the event by going to this web site: www.janushenderson.com/trustslive .

Certainly this format provides a good approach for those investors who cannot easily get to AGMs, while not prejudicing those who wish to attend in person and chat to the directors. They do need to iron out the technical glitches though.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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