Fund Profile

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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
Strong relative performance, and improving revenues suggest CTY is bouncing back…
Overview

City of London Investment Trust (CTY) aims to provide long-term growth in income and capital from companies listed on the UK stock market (although 20% is allowed to be invested overseas). Manager Job Curtis tries to take a long-term view on investments, and to spread risks across the portfolio so that no one sector or company has an overly large bearing on income or returns for shareholders. The statistics show that, over time, his stock picking has been the key driver of returns over and above those of the stock market.

Job’s investment process is based on fundamental analysis, and he tends to have a contrarian style. As revealed in the recent interim results, the contributors to performance in the six months to 31 December 2021 were those companies which many managers have eschewed over the past few years. These include tobacco stocks (CTY is overweight BAT and Imperial Brands), UK supermarkets (Tesco and Morrisons, the latter having been taken over) and miners (BHP, Rio Tinto and Anglo American).

Many of these stocks are also contributing strongly to a rebound in CTY’s income account, which we discuss in the Dividend section. The recent interims show that CTY’s revenue per share increased over the six months to 31/12/2021 by 23% over the same period last year, which is also 4% ahead of the pre-pandemic six-month period to December 2019.

Last year saw CTY deliver its 55th consecutive annual dividend increase which, at the current price, equates to a c. 4.7% yield, higher than the UK Equity Income sector’s simple average dividend yield of c. 4.2% and the FTSE All Share yield of 2.98%.

Analyst's View

Job Curtis has been CTY’s lead manager for the past 30 years, bringing an impressive degree of experience to the management of the trust. As we discuss in Performance, after a tricky start to the 2020 stock market crisis, Job’s long experience helped him have the confidence to stick to his guns. Job’s portfolio of high quality, dividend paying companies has resulted in a strong relative performance since October 2021. Indeed, over the period from 9 November 2020 (the day an effective vaccine was announced by Pfizer) to 14/02/2022, CTY’s is now 3.3% ahead of the FTSE All-Share Index, and 4.8% ahead of the weighted average for the UK Equity Income peer group. We believe this provides evidence that investors’ trust in Job (as evidenced by the consistent premium at which CTY’s trades have traded – see Discount) has not been misplaced.

The recovery in revenues (+23% over the same period last year, and 4% ahead of the same period in 2019) is encouraging. CTY supported the dividend in the last two financial years with revenue reserves. With revenues improving, the board will likely be looking to balance their desire to see a dividend increase with rebuilding reserves (although we note that CTY has considerable capital reserves that are distributable). In the interim results, the chairman states that the “diverse portfolio, strong cash flow and revenue reserve give the Board confidence that it will be able to increase the dividend for the fifty-sixth consecutive year”. Considering CTY’s size and positive record of dividend growth, it remains probable the trust will continue to show strong attractions as a low-cost equity income product.

bull bear
Very low OCF of 0.38%
Cautious approach means NAV performance can underperform in some market conditions
Consistency and experience 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
55-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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