Double Discount (TSE:EVT)

I love buying something when I have two coupons I can use on an item at the same time.  If I have a 10% off and a 20% off coupon giving me a total of 30% off you will find me a minute later walking out of the store with a smile and a swagger.

One investment that offers such a double discount is Economic Investment Trust (TSE:EVT).


Economic Investment Trust is a closed end fund.  I have discussed closed end funds previously here.  EVT has long term investments in E-L Financial Corporation, Algoma Central Corporation and Bank of Nova Scotia.  The rest of the funds are invested in a pool of global publicly traded stocks managed by Burgundy Asset Management Ltd.  The fund has a low management fee of 0.43%.  As of the 27th of March EVT trades at a 24.14% discount to it’s net asset value.

It get’s even better though as 41.6% of the holdings of EVT are composed of an investment in E-L Financial corporation which itself trades at a discount.  E-L Financial (TSE:ELF) is an holding company which owns Empire Life Insurance as well as a large portfolio of stocks and bonds.  As of it’s latest financial statements at the end of 2017 ELF had a net equity value of $1,316.64 per share and as of April 3rd trades at $814.98 per share giving it a discount to NAV of 38.1%.

So doing the math EVT trades at a discount to NAV of 24.14% and 41.6% of it’s holdings itself trades at a further discount of 38.1%.  So in essence when you buy shares of EVT you are getting a diversified stock portfolio at a combined 43.82% discount to net asset value!  I believe that EVT is a compelling long term holding.  Neither EVT or ELF are purchasing back their stock at this time though so these discounts will likely persist.

Disclosure: I own shares of TSE:EVT and TSE:ELF

9 thoughts on “Double Discount (TSE:EVT)

  1. Excellent breakdown and I thank you for posting. While EVT offers a double discount ELF has 24% long term investments ownership in EVT ….which appears to be a double discount squared.

    E-L Financial has a 51.9% (2016 – 51.8%) interest in a closed-end investment corporation, United
    Corporations Limited (“United”), which is an investment vehicle for long-term growth through investments
    in common equities. In addition, E-L Financial has a 36.3% interest in Algoma and a 24.0% interest
    in Economic.

    Like

    1. Yes, it is actually a triple discount given the circular ownership between EVT and ELF. This circular ownership has always seemed weird to me. If I get a chance to go to the AGM of one of those companies I will definitely ask why it exists.

      Like

  2. Happy Victoria and thank you again for posting such an excellent breakdown.
    E-L Financial incestuous relationship exploits closed-fund discounts.
    While I am happy/hopeful you may get an answer by attending a shareholder meeting here are my questions of weirdness in no particular order
    1. Is there a longer history stock than this or like this that has never shareholder diluted for management performance?
    2. What other stock has this wild of currency arbitrage?
    3. Why is EVT excluded from Globe and Mail Closed-End Fund Report?
    4. Why does Globe and Mail Closed-End Fund Report report all NAVs as current except United Corporations Ltd. which it reports as of March 26, 2015?

    Like

    1. For the first question I share your sentiments. I usually am not a fan of stock options. The management teams should be buying the stock with their own money and not getting free shares. I think Canadian General Investments, Algoma Central and Hammond Manufacturing do not have stock options and they are all long lived companies. I own each of them.

      For the second question, by “wild of currency arbitrage” do you mean discount to net asset value?

      For questions 3 and 4 the only person who can answer that is the Globe and Mail. I am no longer a subscriber of them, but if you are I suggest emailing them.

      Like

  3. Thank you again for sharing your thoughts and look forward to reading your new valuation article.
    I also own Canadian General Investments but have never owned Hammond Manufacturing but read it does have management share option plan.
    Stock option plan- Algoma now has new one which makes me think they could be for sale….normally would look at this as negative and wasteful.
    “wild of currency arbitrage” – I bought in us $ as they had a seller who sold cheaper than on Canadian exchange.
    I will never email Globe and Mail as their NAV laziness allows me to enter CGI after my world position went private based on not reporting current Nav as well.
    Bottomline – Unlike yourself I am not a deep value investor but enjoy the time and effort you put into your investments.
    My largest equity positions are google, visa, and probably naspers.
    My largest fund positions are Boulder Growth & Income Fund, Canadian General Investments Ltd, and probably Aberdeen Japan Equity Fund
    Largest holding company positions Fairfax India Holdings Corp , Gazprom, and this which I recently bought with cash from the activism role of institutional investors in my closed‐end funds.

    Keep up the excellent writing and good luck with your portfolio.

    Like

  4. so being as they state on their website: “The Common Shares have historically traded at a discount to their net asset value, generally ranging from a 40% discount to a 15% discount over the past 10 years.” does the discount to NAV even matter?

    I recently sold NWLI which I owned for about 6 years. It is a somewhat similar investment owned by a controlling family. I made good money on it, especially with the CDN dollar dropping in that time but i’m not sure that discount to NAV will ever go away. I enjoyed imagining the return I would get if they actually did anything shareholder friendly (buy back shares, declare a special dividend, increase the dividend beyond something miniscule) but that never happened.

    Like

    1. I believe that a discount to NAV only makes a difference if the company returns capital to it’s shareholders either in dividends or share buybacks. (TSE:EVT) pays a dividend equal to the sum of the dividends of all of it’s holdings and so you essentially get dividends on $1.30 of stocks with only paying $1.00.

      Now the dividend on EVT is low because the dividend on ELF is also low. However since Duncan has taken over their family of companies (EVT, UNC, ELF and ALC) he seems to be very slowly making shareholder friendly moves. He increased the dividend on ELF and UNC. He increased the dividend on ELF by a factor of ten and did a share buyback at ALC. I have the confidence and patience that he will slowly make other moves to increase the shareholder return at these companies and so I own them all.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s