City of London 07 October 2022

City of London Investment Trust (CTY) has an enviable position in the UK Equity Income sector, having the longest track record of dividend increases, the largest market capitalisation and the lowest charges. The trust aims to deliver long-term growth in income and capital predominantly from UK-listed companies, although its mandate allows for a 20% allocation to overseas’ markets. Lead portfolio manager Job Curtis has managed CTY for over 30 years and David Smith was promoted to deputy portfolio manager last year.

Job takes a term-term view on investments, taking a fundamentals’-based approach to investment analysis. He tends to be biased towards quality and value stocks and this has served the portfolio well throughout his tenure. Job is a stock-picker, with a strong track record of stock selection making a positive contribution to the portfolio returns (see Performance). He ensures that no one company can have an overbearing impact on the portfolio, which he ensures is diversified across sectors. On the face of it, the portfolio does not look geographically-diversified, but two thirds of its revenues are generated abroad. CTY has beaten the benchmark FTSE All-Share Index over the last ten years and has delivered the strongest return over the past year amongst its peer group, with the portfolio’s quality and defensive slant coming through.

During the pandemic, as portfolio companies withheld dividend payouts, CTY’s ample revenue reserves ensured that it could continue with steady increases in its own dividend payout and over the last financial year it completed the 56th consecutive annual increase in dividend. This places it at the top of the list amongst the AIC’s Dividend Heroes list (see Dividend section). CTY offers an attractive dividend yield of 5.2% and, with it being one of the largest trusts in the sector, it is also the cheapest with an ongoing charges figure (OCF) of 0.37%.

We believe that for investors looking for an equity income fund to form a core part of their investment portfolio, CTY is a compelling proposition. Job Curtis has an impressive number of years’ experience running CTY and has guided the portfolio through several previous crises and bouts of volatility. This experience gives him the confidence to do what he does best, that is build a portfolio of quality and value-biased companies that generate steady cash flows with capital growth potential, whilst not becoming overly concerned by short-term volatility.

With markets in turmoil, Job’s conservative approach is proving its worth. Over the past 12 months to 30/09/2022, CTY has made a small gain in total return NAV terms, while the benchmark and peer group have both fallen. Quality, large caps and defensives have performed better than the growthier segments of the market and, in the last financial year, CTY has seen a strong bounce back in revenues so that the dividend is once again well-covered. We think the market’s confidence in Job is reflected in CTY trading at a premium to NAV of around 1.7% (see Discount section).