Thoughts on CIE – hold or sell?

1. With the past 18 to 24 months after reviewing positive assessments, our SMSF bought progressively into Contango (CIE) at an average of $0.951. We now hold 81,000 CIE currently priced around $0.75. Would you suggest holding or selling some or all of CIE.

2. In the present market situation how would you compare CIE with Magellan Finance (MFG) and WAM Research (WAX) each of which we also hold — and may be affected by a Labor government’s approach to franking credits. Should we reduce holdings in CIE, now or progressively when it strengthens, and buy more of either MFG or WAX.?

3. Grateful to have your advice.

A: I am a little conflicted as Switzer Financial Group is a shareholder in Contango Asset Management, the manager of CIE.

With that disclosure, let me make these observations:

  1. CIE has delivered on its investment objective;
  2. Its overall investment performance has been disappointing;
  3. It is trading at a discount to its NTA (net tangible asset value);
  4. As a starting point, I would be more a buyer of listed investment companies trading at a discount, and a seller of those trading at a premium;
  5. MFG (Magellan Financial Group) is in no way directly comparable to CIE – the former is the actual fund manager – with profits depending on funds under management and investment performance fees – while CIE is the actual fund, where returns depend on the market and the skill of the manager in selecting the investments. WAM Research (WAX) is more directly comparable;

Listed investment companies, particularly those trading at a premium such as WAX, are vulnerable if the ALP’s proposed change to the refunding in cash of franking credits is implemented.


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