City of London 22 February 2022

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%.

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.