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  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

JPMorgan Global Growth AGM and Twitter Fees

Yesterday I attended the Annual General Meeting of JPMorgan Global Growth and Income Plc (JGGI). This is a global investment trust as the name implies and the meeting was a “hybrid” AGM with a number of shareholders present in person but I attended on-line. Questions could be posed on-line but voting was only via proxy in advance for those attending on-line. I found this a perfectly satisfactory arrangement.

The meeting commenced with a presentation from the managers after brief words from the Chairman about the recent merger of the trust with the Scottish Investment Trust which almost doubled the size of the company. The result will be lower management fees.

The trust is a “high conviction, bottom-up stock selection” investor with 80% active share, i.e. it is definitely not a closet index tracker. As one investor pointed out, this results in a high stock turnover as they are sensitive to changes in the current valuations of companies.

The annualised return since 2008 has been 2.4% ahead of the MCSI All Country World Index per annum but they slightly underperformed last year. But it has a good long-term record and usually trades at a premium to NAV.

The manager emphasised that they aim to own the “best” companies but talked about the 185 different data points they measure on companies re ESG factors – a very tiresome subject that is now promoted by all fund managers. I just want them to make money!

There were some negative comments on Apple, Tesla and Lyft (they prefer Uber). They like Amazon, NXDP, LVMH etc where they are overweight.

There were a few questions from the audience. One was is the dividend covered by earnings? The answer was NO. The justification given was that it is best to invest in the best companies and not worry about the dividend cover. Would it not be best to reinvest the profits? Most investors prefer a reasonable dividend and the company has retained profits from capital that it can pay out.

All resolutions were passed based on the proxy counts before the meeting.

In summary this was a useful meeting which was well managed. For those who want good international coverage and like active management this is a share worth considering.

I shall be tweeting about this report of course. Also yesterday Elon Musk suggested that he would introduce a subscription service on Twitter at $8 per month which would give users some priority in search which he considered essential to defeat spam and reduce the number of adverts they see. There would also be verification of users who subscribed. In reality he is changing the business model from total reliance on advertising.

I am all in favour of those changes. More moderation is required on Twitter and if charging helps to reduce the number of garbage and abusive comments then so much the better.

Musk is also planning to halve the number of Twitter staff. It’s not many companies that have so many non-essential staff that half can be fired. It will be interesting to see the outcome of these changes for investors in Twitter.

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

You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added.

AEW UK REIT, JGGI Merger and ShareSoc’s investor Basics

Yesterday I watched a presentation by AEW UK REIT (AEWU) on the Investor Meet Company platform. This is a property investment trust which I hold but like many property companies the share price has done badly in recent weeks and it’s now on a discount to NAV of over 24%. The portfolio manager, Laura Elkin, explained that the company’s objective is to achieve a high income for investors through active management.

One of the main concerns of investors in such companies is that with interest rates rising, property investing may become less attractive as they typically have significant amounts of debt used to finance property purchases and may need to refinance their debt at more expensive levels. But AEWU have fixed their debt at 2.9% p.a. for the next 5 years and they have a high current cash holding. Their loan to NAV ratio is only 31%.

The current dividend yield is 8.7% although that is not covered by current earnings. This arises from some property disposals resulting in a high cash holding but they expect the dividend will soon be covered again.

There are apparently opportunities arising to buy properties at good prices and they are having conversations with open-ended property fund managers who are having to dispose of assets after falls in the property sector and pension funds having to realise cash.

Another question was whether their property leases were indexed linked. Generally not. Indexed linked leases often have a cap and collar which provides only limited protection and AEWU’s leases are generally fairly short term anyway so can often be relet at higher prices. But that does surely mean that if the economy grinds to a halt then vacancies might increase and pressure to reduce letting prices will rise.

One interesting comment was that the office market is being hit by the ESG agenda. Prices are being affected by the quality of the property in that regard and this is meaning some improvement of properties is required to make them more attractive before reletting.

This was a useful presentation and a recording is available. AEWU have a good long-term record but property trusts are currently out of favour. Taking a long-term view, commercial property is looking to me to be quite an attractive sector at current price levels and AEWU seems to be nimble enough to take advantage of opportunities.

There was news today of a proposed merger of JPMorgan Global Growth and Income (JGGI) trust with JPMorgan Elect (JPEI) trust. The latter is a rather peculiar investment trust with three classes of shares – Growth, Income and Cash. Holders of any of the latter can switch between the classes without incurring tax liabilities.

Total assets of Elect are relatively small at £341 million in comparison with JGGI’s £1446 million so it is certainly a rational move so far as Elect holders and the manager are concerned. Is there any benefit for JGGI holders? There is some minor advantage of a larger asset base reducing overall costs so I will probably vote in favour as a holder of JGGI.

Investing Basics: ShareSoc has launched a series of videos. See https://www.sharesoc.org/investor-academy/investing-basics/ . It’s a meritorious attempt to educate people on the basics of investment in an easy-to-use format and in a few short sessions. It may help some people although this may not be a good time to encourage people to take up stock market investment. The markets are volatile at present with poor returns in the short-term discouraging new investors.

But shares are beginning to look cheap particularly in the small cap sector and where can one get an income of 8.7% which is what AEWU is paying in dividends? No instant access bank or savings account is paying more than 2.5% while gilt yields are higher but still nowhere near 8.7%. There is a capital risk in investing in REITs but there is also in gilts. Corporate bonds may be another alternative to look at but information on those is quite limited.

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

You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added.