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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 is an attractive package, backed by 57 years of dividend increases…
Overview

City of London (CTY) is the largest trust in the AIC UK equity income sector and has the longest track record of dividend increases of any investment trust at 57 years. Job Curtis, alongside deputy David Smith since July 2021, is a fundamentals-based stock picker, and Job’s investment philosophy has been absolutely critical to the long-term success of the trust.

Job’s stock picking is based on his own long experience and analysis, with a wide lens that includes contrarian ideas. That said, this is a conservative investment approach, and caution runs through several aspects of the portfolio. Firstly, Job aims to maintain a broad spread of investments at all times, which allows the team’s stock selection to add value, whilst not exposing investors to undue risks. Job’s conservative approach can also be seen in the investment metrics he favours, including good dividend yields and strong balance sheets, which can demonstrate sustainable cash generation to support dividends and capital expenditure for future growth. As we discuss in the Portfolio section, Job does also venture off the beaten path to look for opportunities that are “off-radar” for other institutional investors.

Whilst the financial year ending June 2022 was strongly positive for CTY on a relative basis, the last financial year was more challenging and CTY underperformed the index. Job has successfully navigated several market cycles and added value over the long term. Performance has latterly picked up relative to the benchmark and the peer group, with CTY now outperforming both on a five-year basis.

One of CTY’s chief attractions is its dividend yield, 5.2% at the current share price, which is significantly higher than the AIC UK equity income peer group weighted average of 4.3% and the FTSE All-Share yield of 3.9%. The board’s track record of increasing the total annual dividend for 57 years is unrivalled. CTY has been awarded a Kepler Income & Growth rating for 2023.

Analyst's View

CTY represents a highly attractive package for long-term investors, with features that are hard to replicate in other funds or trusts. Firstly, the benefit of the length of experience that Job brings to bear on managing the trust alongside David Smith through market cycles is rarely found elsewhere. As we discuss in the Performance section, the long-term track record speaks for itself, despite a more challenging shorter-term experience.

We think investors can take a reasonable degree of reassurance on the board’s clear intent on extending CTY’s 57 years of dividend increases, and as we discuss in the Dividend section, it has the reserves to back this intent. Finally, the low-cost debt, low charges, and ability to add value through continued issuance of shares also add to the allure of CTY, making it a defining trust for the AIC UK equity income sector.

Currently, with the lower valuations that UK companies currently trade on relative to comparators on foreign stock exchanges, shareholders are benefitting from cut price exposure to similar end markets. UK-listed companies also tend to pay higher dividends, especially amongst the large and mega caps, which makes it an excellent place in which to invest for growth and income. As we have noted above, fundamental to Job’s long-running strategy is to not expose investors to undue or concentrated risks. As we discuss in the Portfolio section, this underlines the trust’s likely resilience to changing economic conditions over time, and this surely must be key to the continued success of increasing CTY’s dividend year after year, as it has in the past 57.

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

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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