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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
CTY has benefitted from strong stock picking and the structural advantages of investment trusts...
Overview

Like its namesake, longevity permeates the City of London Investment Trust (CTY). CTY has the longest track record of any trust, having raised its dividend for 57 consecutive years (see Dividend section). Much of this track record can be attributed to Job Curtis who has managed the trust for approaching 33 years. Job’s investment philosophy has clearly been critical to CTY’s success, but so too is the ability to tuck away surplus income into a reserve, and thereby smooth income payouts to shareholders.

This is very much an actively managed portfolio, with an expected number of holdings between 80 and 90. Part of Job’s approach is to maintain a broad spread of investments. By not taking large stock or sector positions when compared to the benchmark, Job and his deputy manager David Smith believe that their stock selection will add value but at the same time does not expose investors to undue risks. In the Portfolio section, we illustrate how Job prefers companies that are not hostage to fortune, or ‘turn-around’ stories.

CTY’s board believes that gearing will enhance returns over the long term, and so took advantage of the previous low interest rate environment by arranging long-term, low-cost debt (see Gearing section). At 7%, CTY’s gearing level remains significantly below the five-year average, and below the average of the peer group. In our view, this chimes with Job’s cautious and practical approach to investing for the long term.

CTY’s significant size puts it at an advantage. In the recent interim results, the board announced a management fee reduction from 0.325% to 0.3%, effective 1st January 2024. Low charges are one of the contributors to the virtuous circle that CTY finds itself in, enabling it to continue to issue shares and grow its asset base.

Analyst's View

Weathering the occasional storm is part and parcel of long-term investing, and in our view, the inherent advantages that investment trusts have, combined with Job’s stock-picking skills have clearly helped. Having been a portfolio manager for nearly 33 years, Job’s experience is one of the unique aspects of CTY. The trust has consistently delivered on its objectives for many years, and in our view—given the repeatable investment process that emphasises spreading risks and investing based on fundamentals—it is in a strong position to continue to do so.

This is an active strategy, and so positive attribution from stock selection is the hallmark of success. Whilst Job has unequivocally added value over the years from his stock picking, the unique tools employed by investment trusts have also added to returns. As we show in the Performance section, Job’s stock selection has been strong over the past decade, but gearing has also contributed to returns more years than not. We also note that share issuance has contributed consistent and significant value to shareholders, in some years making a considerable dent in offsetting the trust’s already low ongoing charges (see Charges section).

Over the last five years, CTY’s average premium to NAV has been 1.2%, which compares to the current slight discount to NAV of 0.6%. In our view, CTY’s lower discount volatility is as much a result of the board’s share issuance and buyback activity, as it is the high-quality proposition that CTY represents as a long-term investment vehicle. If the past is anything to go by, the opportunity to buy CTY’s shares on a small discount may not prove to be around for long.

Bull

  • 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
  • 57-year track record of progressive dividend increases

Bear

  • 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
Continue to Portfolio

Fund History

17 Apr 2024 Pretty, pretty, pretty good
Do investment trusts really protect capital and income against inflation? Let's take a look…
04 Mar 2024 Fund Analysis
CTY has benefitted from strong stock picking and the structural advantages of investment trusts...
13 Dec 2023 In-come all ye faithful
Equity income could be a beneficiary of the higher interest environment, with trusts a good way to capture it…
11 Oct 2023 Fund Analysis
CTY is an attractive package, backed by 57 years of dividend increases…
04 Oct 2023 To gear, or not to gear...
We examine the impact that rising rates have had on fund managers' appetite for gearing as a means to spice up returns...
06 Apr 2023 Fallen Kingdom?
Since the UK was described as a ‘Jurassic Park’ stock market, it has outperformed. Is this a new age for the stock market..?
02 Mar 2023 Fund Analysis
CTY’s managers aim to keep as many eggs in the basket as possible…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
23 Nov 2022 Guns n’ roses
A sustainable future for the free world may depend on investments in weapons and oil as well as traditional ESG friendly assets…
26 Oct 2022 Money for nothing
Debt measured at fair value has had a positive impact on NAV returns for a number of investment trusts this year...
07 Oct 2022 Fund Analysis
Longest (dividend growth), largest (market cap), lowest (charges)...
27 Jul 2022 Has the comeback begun?
Our analysts debate whether the market has fully priced in the current inflation and looming recession…
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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