City of London 02 March 2023
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.
City of London Investment Trust’s (LON:CTY) objective is to deliver long-term growth in income and capital, principally through companies listed on the UK stock market. Job Curtis has been the portfolio manager for nearly 32 years, bringing a length of management experience rarely found with other investment trusts.
This experience informs his philosophy of long-term investing, which is to spread risks across the portfolio so that no one company or sector can have an outsized impact on the portfolio performance or income generation. Aside from maintaining a broad exposure, Job is, fundamentally, a stock-picker with a tendency for contrarian ideas. He will often trim stocks that have performed well compared to the wider market, and recycle capital into other companies showing good value credentials.
These characteristics have proven very helpful to returns in 2022 and many of those stocks which Job saw as good value but out of favour with other managers, have been a major driver of performance for CTY. At the same time, the UK equity market has performed well. Over 2022, CTY outperformed the FTSE All-Share Index by 4.8% in NAV total return terms and 9.1% in share price total return terms. So strong has been the relative performance that, according to statistics from Morningstar, CTY has been a top-quartile performer of all equity trusts in the broad investment trust sector over 2022.
At the historic dividend rate, CTY’s shares offer a c. 4.6% yield. CTY’s board has stated that it has confidence in increasing the total annual dividend for the 57th consecutive year. The new quarterly dividend rate will be announced by the board soon, at the end of March 2023.
CTY continues to attract plenty of investor interest, as befits a trust which has demonstrated the longest continuously increasing dividend in the market (see Dividend section). As a result, the shares have consistently traded at a premium to NAV, allowing CTY to issue shares and grow to being the biggest trust in the UK Equity Income sector. It has net assets of just over £2bn and, therefore, offers investors of all types good liquidity in the market.
CTY’s low charges is another reason that CTY continues to issue shares and grow its asset base, in what has turned out to be a virtuous circle for both investors and managers, since the OCF reduces as the size of the trust increases. As CTY continues to get larger, it is possible that the OCF may continue to fall, which would extend its appeal to fee-conscious investors.
Job’s long experience shapes his approach, which, as we discuss in more detail in the Portfolio section, is to maintain a broad spread of investments and avoid putting all his eggs in one basket. Stock selection has been strong, making positive contributions in eight out of the last ten financial years, while gearing has also contributed to returns, on average. We continue to take the view that CTY’s unique package of characteristics makes the trust an attractive proposition for long-term investors seeking income and capital growth.
- Very low OCF of 0.37%
- Consistency and experience of manager who has delivered long-term outperformance of the FTSE All-Share Index in capital and income terms
- 56-year track record of progressive dividend increases
- Cautious approach means that NAV performance can underperform in some market conditions
- Income track record highly attractive, so manager might risk long-term capital growth in trying to maintain it
- Structural gearing can exacerbate the downside