SIF Folio: Should I Buy City Of London Investment Group? (& WIN)

5th Oct '21 by Roland Head

10 comments 3724 reads

My SIF stock screen continues to deliver results that are heavily weighted towards the UK housebuilding and construction sector. In more than five years running this model portfolio, I don’t think I’ve ever seen such a concentrated set of results.

At the time of writing, nine of the 15 stocks which qualify for the screen are involved in construction or supplying building materials to the UK domestic market:

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As SIF already owns shares in Persimmon (LON:PSN), I don’t intend to add any of these other stocks to the portfolio at this time. But this unusual concentration of stocks does make me wonder about the outlook for this sector. Right now, many construction-related shares look cheap and appear to have rosy outlooks. Will this still be true in 6-12 months? I’m not entirely convinced.

As always, I’m looking for new stocks to add to SIF. Excluding the nine construction-related stocks I’ve highlighted above leaves me with six potential candidates.

Two of these are foreign firms and two - Airtel Africa (LON:AAF) and Beximco Pharmaceuticals (LON:BXP) - are already in SIF. This leaves me with two remaining candidates, logistics group Wincanton (LON:WIN) and small cap fund manager City of London Investment (LON:CLIG) (I hold).

Wincanton (LON:WIN): big faller

I looked at Wincanton in August and concluded that the wafer-thin balance sheet did not truly satisfy my screening rules. I also highlighted the group’s slim profit margins and ongoing pension deficit recovery payments. Although I think that Wincanton is a market-leading business in operational terms, as an investment it’s a stock I’d only buy at a low valuation.

As it happens, Wincanton’s share price has fallen by nearly 20% since I wrote about the stock in August. This has brought the stock’s rolling forward P/E multiple down from 11.6 to 9.3. The rolling forecast dividend yield has risen from 2.8% to 3.5%.

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If this de-rating continues I might be tempted to take a look at this stock. Although the logistics sector is facing well-known problems with driver shortages and rising costs, Wincanton said in September that…

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The Phoenix

5th Oct '21

Great write up Roland, City Of London Investment (LON:CLIG): comes up in one of my favored screens but the killer with this stock is the spread can be all over the place and sometimes stretch's out to north of 5-10% so even at 5% your looking at making 12% on a round trip just to break even when you factor in dealing costs and stamp duty also.

Regards Andy

Rusty2

The spread is only about 2% at the moment but I know it will vary depending on volumes traded and time of day. This is a problem with UK small/mid caps.

indyinvest

As a sizeable shareholder (28%) City of London has been an active player supporting the recent move by the board of Genesis Emerging Markets to switch the management contract from Genesis to Fidelity, which is a situation that I think is well worth looking at if you are a follower of investment trusts . The new ticker is FEML. There will be a tender offer to shareholders which will reduce the size of the trust, but thereafter the board and shareholders will hope to see the trust grow and perform better. (Jonathan Davis, Editor of the Investment Trusts Handbook).

eggbaconandbubble

One reason CLIG has not performed better, share price wise, in recent months is that Barry Olif is SLOWLY selling off his entire stake.- 2.35%. 1.2 million shares . At the present rate of selling this is going to take some time. But when done the sp. should catapult upwards.

In the meantine a healthy divi. supports having a holding.

xd. Thursday - 22p

Roland Head

Hi Andy,

I agree; liquidity is not always that good on £CLIG. The spread can be wide, but looks reasonable at the moment at c.2%.

If I added the shares to the SIF folio, liquidity might be an additional risk - the spread would likely widen on the event of bad news.

Regards,

Roland

Disc: I hold CLIG.

icm

6th Oct '21

Roland - On the old site it was very easy to navigate to your list of recent trades and the SIF Folio now I can't seem to do it. Is this function no longer possible or am I missing the obvious?

Wimbledonsprinter

7th Oct '21

I have held City Of London Investment (LON:CLIG) for a few years but this week sold out of most of my holding., as the price was holding up despite general market weakness. My reasons for selling were

1). Last year saw AUM growth because of rising markets but despite the approx £800m of net outflows. There seems no reason to assume the trend of net outflows will be reversed.

2). In the most recent quater, markets have been weak and in particular emerging markets (still half of AUM). So will AUM have fallen in last quarter?

3). Last year most of the funds outperformed as discounts narrowed - in the last quarter we have generally seen discounts of ITs widen - therefore can we expect underperformance?

4). I had not realised before how large CLIG’s holdings are in some of the key emerging market Inv Trusts - sometimes close to 30% (eg JII). I presume this bulkiness of position will put off a number of potential investors in CLIG’s EM funds.

@icm

It's no longer possible to view the SIF folio in the way you could on the old site.

However, I publish a monthly review article which includes a snapshot of the portfolio. You can find the review for September here:

https://www.stockopedia.com/co...

At present, these reviews only include details of stocks I'm selling. New buys are listed in other weekly articles.

However, what I'll do from now on is to include a list of recent buys in each monthly review too. That way, each review will provide a complete snapshot of activity in the preceding month.

Incidentally, you can find all of my articles on my author page, which can be found on the "Discuss" tab:

https://www.stockopedia.com/au...

Tortoise investor

I'm glad you've put the spotlight on City Of London Investment (LON:CLIG) Roland. It's a long-term favourite of mine and is about 9% of my portfolio which is high for me. There are a couple of other points I'd like to draw out for the benefit of other readers

Pros:

City Of London Investment (LON:CLIG) has, historically, been very conservatively managed. Maybe too conservatively? It's one of the attractions for me as it's a pretty steady and stable share, throwing off cash and lovely dividends. If broker estimates are hit then next year will be a c.7% dividend.
The company has also been incredibly transparent with shareholders. Check out this webpage where they give you monthly updates on funds under management.
Similarly check out this webpage which demonstrates how they successfully manage a high dividend. You will see there is plenty of scope currently for a rise in the dividend payout. Their dividend policy is for 1.2x cover over a rolling five-year period so that gives some reassurance about the high dividend being maintained. The current 5-year average cover is 1.29 so maybe we will see a decent uplift shortly?
The new management team seems a bit more growth focused.
Variable costs are about 21% of income and get dialled down when income reduces - e.g. performance related pay.

Risks:

Following the merger Karpus shareholders weren't allowed to sell shares for 12 months. This has now come to an end as of this week so we might see some selling activity from Mr Karpus given he has taken more of a backseat in the business. It must be quite difficult to go from being the leader of your own business to a non-exec of an enlarged business so I wouldn't be surprised if he starts to wind down his shareholding which could the brakes on any share price rises.
Similarly, given he was a major figurehead of Karpus, his more backseat role might undermine client retention for the Karpus side of the business.
The outflows you've highlighted could continue. I expected some outflows from the merger due to management changes perhaps impacting client retention and their investor base (institutions and high net worth individuals) have maybe wanted to sell down a bit during the nervousness of the pandemic? Worth keeping an eye on though.

Their latest investor report is worth a read for anyone starting their research: https://www.clig.com/investor-...

You reference City Of London Investment (LON:CLIG) reaching all-time highs but I think the historic chart should be treated carefully now as the merger has created a larger company with a higher earnings per share so it should absolutely be hitting all-time highs.

ps I always enjoy your articles - they're very thoughtful - and would be great to see you as a more regular commentator in the SCVR.

8th Oct '21

Roland - Thank you for taking the time to reply and for your proposed strategy going forward, much appreciated - it was hugely helpful on the old site to be able to look at the list of recent trades, I can be offline for weeks at a time so it was a quick way of double checking I hasn't missed anything.

SIF Folio: Should I buy City of London Investment Group? (& WIN)

Wincanton (LON:WIN): big faller

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Roland Head

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