I have owned Chesnara since 2007, buying and selling different tranches at different prices. This chunk of shares was bought in 2011, primarily because of the yield, which at one point approached 10%. Time (and the company management) has worked its magic: early in the New Year - and thanks to the news of its acquisition of the Direct Line Life Insurance business - my patented 'sell' indicator started flashing (i.e. capital gains exceeded five times the annual income).
Chesnara plc was formed in only 2004 with a basic business model of making money by buying up blocks of closed life funds and squeezing cost and capital savings out of them. The success of this depended on:
- how long people with policies survived
- whether any new policies issued were correctly priced
- how successful they were at managing the portfolio of financial assets.
Well, they've done quite well, to give them their due. But given the opportunity of taking five years' income 'in advance' (by selling), was there any reason to continue holding? The yield was still attractive - at over 5% - but the dividend cover was thin (1.4). Also, given that life assurance requires long-term holdings - typically in bonds and gilts - I expected that the capital value of their assets was likely to plummet over the coming years, with the withdrawal of QE stimulus. Plus - barring a zombie apocalypse - people are living longer.
So, I sold, netting a 38% capital gain.
But, as in zombie horror movies, you need to be careful: make sure the zombie really is dead before you turn your back on it. Because I turned my back and it kept on coming - so it turns out that I left a bit of money on the table...
[Sale price: £3.33]
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.