Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by City of London. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

City of London’s (CTY) objective is to provide long-term growth in income and capital. The trust has the longest track record of providing annual dividend increases in the investment trust sector. The board has stated that it intends to continue to pay a progressive dividend, which if achieved in the current financial year will represent 55 consecutive years of growth.

Job Curtis, CTY’s manager for 30 years, is a fundamental stock picker who prefers defensive companies which can deliver demonstrably sustainable cash flow to support both dividends and capital expenditure. As we discuss in Portfolio, Job has not been tempted into more cyclical areas of the market. This has resulted in a short-term relative performance headwind this financial year, but Job has a track record of adding value through stock selection in eight of the previous ten financial years.

Job continues to believe that the path back to economic normality will not necessarily be a smooth one. The UK’s dividends may have taken a significant knock, but he is positioning the portfolio for a long-haul recovery in the trust’s income. As we discuss in Dividend, the board have stated that they have adequate reserves to support the dividend for the foreseeable future, but Job is also exposed to companies like BHP which have demonstrated they are capable of significant improvements to their dividends.

City of London offers a historic dividend yield of 5.3%, representing a chunky yield premium to the UK equity market. The trust is large, liquid, and low cost (see Charges), and continues to attract demand from investors for the shares which currently trade at a premium of 3%.

Analyst's View

In our view, investors are attracted to City of London’s high yield, the unrivalled record of dividend progression, and the low cost of the trust. This, together with the historic stability of the discount/premium, makes an attractive package in our view.

Job is a fundamental stock picker who can look back on 30 years of experience to help him navigate markets. At a time like this, we believe this is a huge asset to the trust. His cautious nature and valuation aware investment approach has seen him avoid the cyclical rally we have seen recently. However, in our view, of more interest to investors than short term out or underperformance, is the prospect of the trust’s income recovering such that it becomes covered once again.

Job has stuck to his guns and retains his preference for conservatively run and well-financed businesses. This approach has stood him well over the long term, as is shown in his track record of delivering small but steady outperformance over the years, and an enviable dividend track record. Since September, City of London’s shares have once again been in demand, and currently trade on a premium to NAV of 3%. This is slightly ahead of the five-year average premium to NAV of 1.6%. The sector beating OCF of 0.36% is another reason City of London may continue to attract strong demand from investors.

BULL
BEAR
Very low OCF of 0.36%
Balanced, large-cap portfolio means NAV performance can underperform in some market conditions (such as the current cyclical rally)
Consistency of manager who has delivered long term outperformance of the FTSE All Share in capital and income terms
Income track record highly attractive, so manager might risk long-term capital growth in trying to maintain it
Fifty-four-year track record in progressive dividend increases
Structural gearing can exacerbate the downside
Continue to Portfolio
2022 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth... Find out more

Fund History

15 Jun 2022 Staying active
We highlight several alternatives to passive investments for investors looking for core exposure in uncertain markets...
27 May 2022 Out with the new, in with the old
Unflashy old school businesses may still deserve a place in your portfolio…
20 May 2022 Is it time to ditch index funds?
Averaging out makes sense in a boom market but may be much riskier in the future…
22 Feb 2022 Fund Analysis
Strong relative performance, and improving revenues suggest CTY is bouncing back…
15 Dec 2021 Dividends in the time of corona
Investment trusts have proven their worth during the pandemic, delivering dividend growth despite the turmoil…
03 Nov 2021 Don't fear the reaper
With market direction hard to call, we consider the case for taking a long-term view in the investment trust sector…
23 Sep 2021 Fund Analysis
CTY’s manager is seeing a good recovery in portfolio income, in turn leading to improved dividend cover…
28 Apr 2021 The next value opportunity?
Two of our analysts debate whether Europe's improving vaccination programme will be the next opportunity for investors in their pursuit of returns...
24 Feb 2021 Fund Analysis
CTY’s large cap bias means it has lagged the index recently, but the dividend picture is still strong…
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
01 Oct 2020 Alternatives for Income Investors
Slides and audio from our event focused on alternative routes to a reliable income…
30 Sep 2020 Fund Analysis
CTY’s dependable track record of dividend growth continues, but it has slipped to a rare discount…
30 Sep 2020 Slides and Audio: City of London
View the presentation and listen to the audio from our 'Alternatives for Income Investors' event on 29 September...
20 Aug 2020 Alternatives for income investors
In a world where dividend are under unprecedented pressure, our income focused online event in September should provide serious food for thought…
25 Jun 2020 Selling the family silver
Is there something fishy about a trust paying dividends from capital?
23 Apr 2020 Sucker punch
Two of our analysts debate the merits of equity income and alternative income trusts at this point in time...
15 Apr 2020 Hold fast
Investment trusts' revenue reserves could make them a vital stronghold for investors facing UK dividend cuts of as much as 47%....
12 Mar 2020 The importance of buying earners*
Our analysis shows that the impact of dividend contributions on long term returns is anything but trivial...
05 Dec 2019 Holding something in reserve
A sterling bounce poses a threat to UK dividends - we look at how UK equity income investment trust managers stand prepared…
14 Oct 2019 Fund Analysis
Fifty-three consecutive years of dividend growth, and counting…
14 Aug 2019 Dangerous ground: the perils of market timing
Our research shows that attempting to time the market is, more often than not, a mug's game...
17 Jul 2019 Ready for action
In the second part of our active management series, we assess the most active managers across the major closed-ended equity sectors…
03 Apr 2019 Nice guys finish first
We review the rise of ESG, its impact on investment trusts, and the various ways ESG has evolved in the trust world...
06 Feb 2019 Income for the long haul
With 'ISA season' looming we identify investment trusts which offer long-term, dependable income streams for yield-hungry investors...
05 Feb 2019 Fund Analysis
The trust with 52 years of dividend growth, and counting...
09 Mar 2018 Fund Analysis
An income focused trust which aims to generate long term capital growth and a rising income, with an unbroken track record of dividend increases lasting half a century...
20 Nov 2017 Thin ice...
Our analysis shows the extent to which funds in the UK equity income sector are concentrated on just a few dividend paying stocks…
13 Sep 2017 Big Issue(rs)
We highlight the UK equity trusts that have issued and bought back the most shares over the course of 2017 so far and how these actions have affected shareholders...
08 Aug 2017 Fund Analysis
An income focused trust which aims to generate long term capital growth and a rising income, with an unbroken track record of dividend increases lasting half a century...
12 Jun 2017 MAYDAY!
As the Conservative party founders, we examine the impact of last week’s disastrous election on trusts...
11 May 2017 Storm proofing...
Our research shows dividend cover among UK equity income trusts is at its highest level in decade...
22 Mar 2017 The new kids on the block…
We highlight the three newest managers to grace the UK equity sectors and how they have put their own individual stamps on the portfolios they've inherited...
View all

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