Clime Investment Management Limited (ASX: CIW) is a steadily growing and value focused investment manager continuing to develop an interesting mix of related revenue streams. At present funds under management are in excess of $530m comprising $382m in DSP (individually managed accounts) services, $88m in the listed investment company Clime Capital Ltd (ASX: CAM) and $60m in the unlisted Clime Australia Value Fund (a top ranker on relative performance).
Regarding Clime Capital, it is important to note an investment company is generally more operationally efficient and tax effective than managed funds, as investment companies are essentially closed and not subject to the application / redemption cycle. Shares can also be issued or bought back if appropriate and dividends are usually franked. Another advantage is that investment companies can sometimes be bought on the market at a discount to net asset backing; providing opportunities.
Clime Investment holds 8% of Clime Capital and has a stake of 19% in the unlisted Jasco Holdings (stationery, office supplies, fine arts and graphic supplies etc). Clime will also launch an international fund in March – this is to operate out of London and will be managed by Sanlam Private Investments (part of a large South African financial services business) using Clime’s data and valuation methodology. Clime Investment Management is selling at 18 times prospective 2014 earnings, and appeals as a well managed high-growth stock.
Contango MicroCap Ltd (ASX: CTN) is a listed investment company specialising in micro to small-cap companies; both industrials and resources. Investment performance has been good over a number of years, easily outpacing the small ordinaries index. Although small stocks can be more volatile and do experience lower liquidity when compared to the ASX100, it is arguable whether this involves more risk. The level of risk is very dependent on management ability, financial health and the medium-term outlook for any business – whether large or small.
Smaller companies are under researched and experience greater market inefficiencies, creating a fertile ground for dedicated value investors such as Contango Microcap. In the five years to 31/10/2013 Contango Microcap returned a compound 17.2% pa – compared to 11.1% pa for the All Ordinaries Accumulation Index and 7.1% pa for the Small Ordinaries Accumulation Index.
Contango Microcap has a policy of a 6% dividend on the net asset value standing at the start of each financial year. If a dividend cannot be declared, a matching capital return will be made – this provides some assurance re income returns. In 2013, the 100% takeover of Contango Asset Management was completed, bringing the management company and associated activities in-house.
Investing in a ‘readymade’ portfolio can make sense if you’re starting out in the stock market or wish to diversify your own existing portfolio. Like any business investment, companies can be assessed on proven management ability, strategies, positioning and integrity – and of course, timing and the price available. I also like investment companies who stand away from the crowd as these can be superior performers over the longer term. Both Clime Investment and Contango Microcap are well qualified for serious consideration.
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Motley Fool contributor Peter Andersen owns shares in Clime Investment Management.