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56. Uncovering Trusts – Canadian General Investments (CGI): Unlocking long-term value in North American equities
87 Plays3 days ago
In this episode, Liam O'Byrne, a member of Edison's investment company content team, discusses Canadian General Investments (CGI). Established in 1930, CGI is one of North America's oldest closed-end funds and has been managed by Morgan Meighen & Associates since 1956. Liam introduces the fund and its managers' long-term, bottom-up investment approach, with a mandate primarily focused on Canadian equities but with flexibility to invest up to 25% in US-listed companies. Led by portfolio manager Greg Eckel, the fund currently holds around 54 positions based on its 2026 AGM presentation. Liam outlines key portfolio holdings including Celestica, a major beneficiary of AI-related data centre investment, NVIDIA, Franco-Nevada and a growing uranium position via Cameco, NexGen Energy and Denison Mines. Turning to performance, Liam covers CGI's exceptional long-term track record, with annual share price total returns of 10.7% over 25 years and 11.8% over 50 years, both ahead of the S&P/TSX Composite Index.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers around 50 investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction to CGI
00:00:06
Speaker
Welcome to Uncovering Trusts, podcast by Edison Group. I'm your host, Miłosz Pabbs, Director of Investment Company Content at Edison, and today I'm joined by Liam O'Byrne to discuss Canadian General Investments, or CGI.
Historical Background
00:00:18
Speaker
i Liam, thanks for joining us today.
00:00:20
Speaker
Thanks, Miloš. Great to be here. yes CGI is a distinctive investment company and one that i think probably deserves more attention from investors looking beyond the familiar US s growth story.
00:00:31
Speaker
Yes, I fully agree.
Investment Strategy and Approach
00:00:32
Speaker
So let's start with the basics. um What is CGI and why is it distinctive in the investment company universe? Yeah, so CGI is one of North America's oldest closed-end funds. It was established in 1930, listed on the Toronto Stock Exchange in 1962, and then on the London and Stock Exchange in 1995. It's managed by Morgan May & Associates, or MMA, which has managed the portfolio since 1956 and has around 3.2 billion Canadian dollars in assets under management for private and institutional clients.
00:01:05
Speaker
Greg Eccle has been CGI's lead portfolio manager since 2009, nine and ah Victor Chung joined in 2024 as assistant portfolio manager. I'd say the proposition is best described as a one-stop shop for Canadian equities. So, as you might expect, the portfolio is primarily Canadian. However, it is worth noting that the mandate allows up to 25% to be invested in US-listed companies, where the team wants exposure to businesses or sectors that are perhaps underrepresented in Canada.
00:01:33
Speaker
Okay, I
Distinctive Portfolio Characteristics
00:01:34
Speaker
understand. So it this it is mainly a Canadian equity story, but with a bit of flexibility. So ah how does the investment process work? Yeah, so the process is fundamentally bottom-up, although Greg does keep the macro backdrop in mind. The team looks for reasonably valued companies with favorable fundamentals and strong management teams, and ESG considerations are also incorporated into the research.
00:01:58
Speaker
It is a genuinely long-term approach. The 2026 AGM presentation showed 54 holdings and portfolio turnover of of around 11.5%, which still implies a long average holding period of around eight and a half years.
00:02:12
Speaker
The portfolio is biased towards large and mid-cap companies, and no single sector can exceed 35% of the portfolio. The managers are not trying to mirror the S&P TSX Composite Index, so the sector weightings can look quite different from the Canadian market.
00:02:27
Speaker
Okay, thanks. so ah So tell us about the most obvious differences versus the index at the moment. Sure.
Top Holdings and Thematic Focus
00:02:34
Speaker
So the largest active weight is financials. ah connect Canada is often associated with its banks. These and other financials made up around one third of the benchmark at the end of May 2026.
00:02:45
Speaker
CGI's exposure was closer to 13% of the portfolio. So the underweight was around 20 percentage points. Financials is long-term underweight position and the manager generally finds as the manager generally finds better investment opportunities elsewhere. But then on the other side, CGI is meaningfully overweight industrials and information technology.
00:03:04
Speaker
Okay, thanks. That's a useful high-level view of the portfolio. So maybe now let's talk about the portfolio in in in more detail. Sure. Yeah. At the end of May 2026, the top 10 holding is accounted for around 38% of the portfolio.
00:03:19
Speaker
The largest holding was Celestica at 5.5%, which is a Canadian electronics manufacturing services business that has been a major beneficiary of AI-related data center investment because it designs and fulfills specialized equipment used in that build-out.
00:03:34
Speaker
CGI initiated the the position in mid-2024, and Celestica's share price more than tripled in 2025. So I think it's a very good example of you know the potential payoff from active stock selection.
00:03:46
Speaker
ah Nvidia and Franco Nevada were the tune next two holdings, both around 4.5%. Then MDA Space, a Canadian space tech company, and first contra and ah Quantum Minerals, a copper-focused metals and mining company, completed the top five.
Performance and Recent Additions
00:04:01
Speaker
Thank you. That's that's interesting. I noticed that uranium doesn't feature in the top five, but I understand it has become an increasingly prominent theme within the portfolio. um Can you maybe explain that? Yeah, that's right. And it's an interesting development. So CGI's energy weight increased modestly to 16.5% by the end of May 2026.
00:04:22
Speaker
And a significant part ah of its energy exposure is made up of uranium. The fund's holdings include Cameco, NextGen Energy and Denison Mines. Now, the underlying investment case is linked to the renewed focus on nuclear energy, which is being supported by decarbonisation, energy security, electricity demand from AI and data centres, as well as the extension or refurbishment of nuclear reactors.
00:04:45
Speaker
and Greg sees uranium as an attractive long-term theme, although he is clear that short-term share price moves can be difficult to forecast. Okay, and what about recent portfolio activity beyond uranium?
00:04:57
Speaker
Yeah, several recent additions I think really help illustrate the breadth of the approach. One is Icon, a Canadian construction and infrastructure business that has been improving the quality of its operations and is well positioned for infrastructure spending in Canada.
00:05:11
Speaker
Another is Aritzia, the fashion retailer, which the manager views as an everyday luxury brand with a long runway for expansion in the US and also a strong e-commerce platform. A third is Bombardier, the business jet manufacturer, which has changed materially since exiting regional jets.
00:05:29
Speaker
The business has a more focused aviation franchise, a sizeable backlog, and also now a growing defence opportunity. The point, I guess, overall is that CGI is diversified fund.
00:05:39
Speaker
The managers are looking across the whole Canadian corporate landscape and then selectively in the US s for businesses that can ah compound value over time. great Perfect, thank you. and well now Performance is obviously central to CGI story.
00:05:54
Speaker
So how strong is the long-term record? yeah It's very strong. Over the 25 years to the end of 2025, CGI share price delivered an annual total return of 10.7%, compared with 8.1% for the SMP TSX composite index.
00:06:10
Speaker
Over 50 years, the annual returns were 11.8% for CGI and 10.5% for the index. So now in cash terms, $10,000 Canadian dollars invested in CGI 50 years ago would have grown close to $2.6 million Canadian dollars compared with around $1.5 million Canadian dollars for the same investment in the benchmark.
Trading Discount and Dividend Policy
00:06:29
Speaker
So i think that's ah a powerful demonstration of what a modest annual advantage can become when it's compounded over a very long period. Yes, absolutely. And now what happened more recently, i know that 2025 was, well, not straightforward.
00:06:44
Speaker
That's right. Yeah. So 2025 was positive in absolute terms, but difficult relative to the benchmark. CGI's NAV and share price total returns were 18.1% and 19.9% respectively,
00:06:57
Speaker
while the s and p t s six composite index returns thirty one point seven percent Now, the Canadian market was led by gold and bank stocks, and CGI was underweight both areas.
00:07:08
Speaker
Gold had its strongest rally in over four decades, rising by more than 60%, and bank stocks were also very strong. CGI did benefit from its holding in Franco-Nevada, but this isn't a ah pure gold play.
00:07:19
Speaker
and Then on the more positive side, Celestica was a major contributor, um and first quantum minerals almost doubled, and and long-term holdings such as Dollarama and Shopify also performed well.
00:07:31
Speaker
All right. And ah how does CGI compare with peers in the AIC North America sector? CGI is unusual because its the it is the only Canadian equity fund in the small AIC North America sector.
00:07:44
Speaker
Recent relative performance has been encouraging and the long-term record is very commendable. Hence, CGI offers and and an an interesting alternative alternative to the traditional US-focused funds in order to gain North American equity exposure.
00:07:58
Speaker
Okay, thanks. And now one thing investors often notice is the discount, which is well very wide. um Why is that? CGI typically trades at wide discount and now to its NAV.
00:08:10
Speaker
This is because repurchasing shares to help manage the discount would actually invalidate the company's favorable Canadian investment corporation tax status, which allows taxes paves or payable unrealized capital gains to be recovered through the payment of capital gains dividends to shareholders.
00:08:25
Speaker
Currently, the discount stands at around 40%, which is towards the wider end of its three-year range. There is also a limited free float because its seemed if a significant portion of the shares is held by related parties.
00:08:38
Speaker
The flip side, though, is that investors are buying a long-established Canadian equity portfolio at substantial discount to NAV. Historically, there have been periods when the discount has been much narrower. So any improvement in sentiment towards Canadian equities could add to the underlying NAV return going forward.
00:08:54
Speaker
Thanks, that that's a useful explanation. Now, let's turn to dividends because CGI also has an interesting
Leverage and Fees
00:09:01
Speaker
income. story, I believe. It does, yeah. The borders pursued a progressive dividend policy for more than a decade. Between FY18 and FY24, the dividend was increased by one Canadian cent per share each quarter.
00:09:14
Speaker
In FY25, the increase accelerated to two Canadian cents per share per quarter, taking the annual dividend to $1.08 Canadian. In FY26, the first two quarterly dividends were C$0.31 per share, which is 14.8% higher than the previous year. If that quarterly rate is maintained, the and annualized dividend will be one dollars twenty four cents canadian per share.
00:09:37
Speaker
The current 12-month trailing yield is about 2.2%, while the prospective yield on that annualised FY26 run rate is closer to 2.4%. ah The dividend is underpinned by you know the funds' ability to pay both regular taxable dividends and capital gains dividends, and also by the sizeable unrealised gains in the portfolio.
00:09:57
Speaker
All right, and and and I presume CGI uses leverage it as well. How material is that? Yeah, leverage is a meaningful but controlled part of the structure. So CGI uses a bank borrowing facility.
00:10:10
Speaker
At the end of May 2026 net gearing was 11.4%. The managers use leverage since 1998 and the strategy has historically added value.
00:10:20
Speaker
Of course, it works both ways though. It can amplify returns when markets rise and losses when markets fall. In the context of CGI, it is another tool used to support long-term shareholder returns rather than a short-term trading lever.
00:10:34
Speaker
Yes, of course. And now for completeness of our conversation, ah what should investors know about fees? Yeah, the the management fee is 1% per year of the market value of CGI's investments adjusted for cash, portfolio accounts receivable and portfolio accounts payable, and there is no performance fee.
00:10:51
Speaker
they ah The AIC style ongoing charge, and excluding leverage and transaction costs, was 1.4% at December 2025. Now, that is not low relative to the broader investment company market, and it is something to flag, but I guess the proper question is whether you know the long-term performance, differentiated exposure, and active management justify the cost. think when you look over the long term, the answer has to
Economic Outlook and Sector Focus
00:11:14
Speaker
be yes. Of course. um Now, before we wrap up, um how are the managers thinking about the Canadian investment backdrop? Yeah, the the Canadian economy remains relatively muted and trade uncertainty with the US is an important risk, particularly with the upcoming renegotiation of the Canada-US-Mexico free trade agreement.
00:11:32
Speaker
At the same time, the Canadian market has benefited from hard asset exposure, including energy, uranium, as we've discussed, copper and gold. And Canada remains home to high quality industrial technology and consumer companies.
00:11:44
Speaker
The manager's message is that the macro environment of course matters, but it it is not core is not the core of the investment case. CGI's long-term record has come from identifying individual companies that can outperform over time, and that remains the focus.
00:11:58
Speaker
Liam, that's a very comprehensive tool of CGI. To close, how would you summarize the fund's appeal for potential investors? Yeah, to summarize, I'd say CGI offers a rare combination, a fund with a long pedigree, a differentiated Canadian equity portfolio and a 25 and 50 year record of outperformance versus the Canadian market.
00:12:19
Speaker
The current portfolio gives investors exposure to themes such as AI infrastructure, uranium, infrastructure spending and selected high quality Canadian consumer and industrial businesses. The progressive dividend also adds an income element and and the wide discount means investors are buying the portfolio at at a ah substantial valuation gap.
00:12:38
Speaker
The discount is structural and it is unlikely to disappear overnight. But for long-term investors seeking North American equity exposure, that is not simply ah another US growth fund. CGI is
Conclusion and Further Resources
00:12:49
Speaker
well worth examining closely. Thank you very much, William. Fascinating discussion about one of the most distinctive investment companies in the North America sector.
00:12:58
Speaker
You've been listening to Uncovering Trusts, a podcast by Edison Group. If you want to find out more about CGI and other investment companies we cover, please visit www.edisongroup.com.