City of London 11 October 2023

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.

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.