Australian Small Caps Follow Up

Following on from my post from yesterday, I came across this article about Contango MicroCap (CTN) by Michael Pascoe. A quick look at the performance of the fund shows that, as far as I can tell, it has basically tracked the small ords index since its inception, and therefore has under-performed badly over the past six years. Since July 1, 2016, Contango is up only 0.6%. But as Leisa Bell at Cuffelinks points out, this was typical of small cap focussed funds that did well in early 2016 and then faded in the second half. The chart below shows CTN's share price.

 

What I find interesting about Contango is that they have a policy of paying out a 6% dividend yield. Now, when you consider that Contango has not grown at anywhere near that rate for years, it should come as no surprise that the company is "burning through cash", as Pascoe says. There's a fair bit of vague innuendo in the article, but this is a very troubling bit:

"The relationship brokers enjoy with funds managers extends beyond mere trades to potentially very lucrative underwriting of dividend investment plan shortfalls ... "

Not surprisingly, shareholders and directors are fed up and are trying to shake things up with Contango's fund managers. Should be an interesting fight when you consider that James Packer and the Greek Melbourne Mafia are involved.

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