Fund Profile

Disclaimer

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
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Overview

City of London’s (CTY) objective is to provide long-term growth in income and capital. CTY has the longest track record of providing annual dividend increases in the investment trust sector, which now has 54 consecutive years of growth since 1966.

The COVID-19 crisis and market sell-off has left CTY underperforming the market over the short term. However stock selection remained positive in the financial year to 30/06/2020 – as it has been for eight out of the past ten financial years. Being geared in a falling market was the main culprit.

Job Curtis, CTY’s manager for nearly 30 years, has reacted swiftly to events by repositioning the portfolio to reflect today’s new reality. He is a fundamental stock picker first and foremost, looking for defensive companies which can deliver demonstrably sustainable cash flow to support both dividends and capital expenditure. As we discuss in Portfolio, he has increasingly been looking abroad to find companies that suit his criteria. Job has also significantly reduced exposure to sectors such as travel & leisure and energy, in our view making the portfolio a more defensive.

There are clearly no quick fixes to COVID-19, and its impact will likely be felt for years to come in company earnings and dividends. CTY has drawn on revenue reserves to bolster the dividend for the last financial year. Despite the very difficult environment, the board has reaffirmed its commitment to growing the dividend for the current financial year ending 30/06/2021. Yet, as discussed in Discount, CTY is now buying shares back on a discount of 2%, having typically traded on a premium for the past five years.

Analyst's View

In our view CTY continues to be a low-cost poster child of the UK equity income sector.

Job’s preference for conservatively run and well-financed businesses clearly lends itself well to the mandate; he has consistently added value through stock-picking in eight years out of the past ten. Job has proven he can outperform the FTSE All Share, whilst delivering rising dividends over the medium to long term. Its statistics (see Performance section) show how powerful CTY is as a package, which perhaps explains why the trust has been able to grow so consistently over the past decade.

With an OCF of 0.36% the trust is extremely competitive in terms of cost. The fact that shareholders have historically benefitted from share issuance at a premium means that the effective ownership cost, in some years, is significantly lower than this figure.

The historic solidity of the dividend (see Dividend section) is a key selling point, in our view, which is backed up by the board’s statements of intent – and its not inconsiderable reserves. CTY’s yield is attractive relative to most equity income products, offering a historic yield of 6.1%, with the board signaling that it intends further growth in the current year.

CTY delivers on its promises with exceptionally low charges, and has a strong and consistent manager with extensive experience. Now that the trust is on a rare discount of 2%, we view the shares as even more attractive.

bull bear
Very low OCF of 0.35% Core approach means NAV performance unlikely to deviate far from peer group
Consistency of manager who has delivered outperformance of the FTSE All Share in capital and income terms Income track record highly attractive, so manager might risk long-term capital growth in trying to maintain it
Fifty-four year track record in progressive dividend increases Structural gearing can exacerbate the downside
Continue to Portfolio
2022 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth... Find out more

Fund History

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...
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