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City of London Investment Trust - a high quality portfolio for uncertain times

| Investment Analyst | 26 September 2017 | A A A
City of London Investment Trust - a high quality portfolio for uncertain times

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

  • NAV total return of 14.5% compared with 18.1% for the FTSE All-Share
  • Share price total return of 16.7%
  • The high-quality nature of this diversified trust could help it navigate uncertain markets
  • Dividend per share of 16.7p – a year-on-year increase of 5% and the 51st consecutive annual dividend increase

Job Curtis has been at the helm of the City of London Investment Trust since 1991 and his approach has remained intact throughout. He seeks companies with robust balance sheets, capable of providing strong cash generation and an attractive dividend yield.

The trust has successfully grown its dividend for more than 50 years. We believe a focus on financially-strong companies; an emphasis on diversification; and the ability to build revenue reserves during the good times has, and will continue to, support the trust’s dividend payments. Investors should remember dividends are variable and not guaranteed.

An investment of £10,000 made 10 years ago would today be worth £22,308* with dividends reinvested while the FTSE All-Share would have returned £17,923* over the same period, although past performance is no guide to the future.

Annual Percentage Growth
Aug 12 -
Aug 13
Aug 13 -
Aug 14
Aug 14 -
Aug 15
Aug 15 -
Aug 16
Aug 16 -
Aug 17
City of London Investment Trust 22.2 10.6 5.2 10.0 9.9
FTSE All-Share 18.9 10.3 -2.3 11.7 14.3

Past performance is not a guide to future returns. Source: *Lipper IM to 31/08/2017

The year in review

The trust delivered a return of 14.5% in NAV terms over the period in review, however it underperformed the FTSE All-Share by 3.6%. The trust’s bias to larger companies held back returns as domestically-focused, and higher-risk, small and medium-sized companies outperformed their larger, more international counterparts. Returns were also hampered by the trust’s lack of exposure to the strongly-performing banking and mining sectors, which are underrepresented in the portfolio due to the low dividends they have paid in recent years.

On the other hand, the biggest contribution to performance came from the trust’s exposure to the housebuilding industry with investments in Persimmon, Taylor Wimpey and Berkeley Group all delivering attractive returns. The manager believes all three companies are well placed to fulfil some of the demand for UK housing as each have acquired large portfolios of development land at attractive prices.

The manager made a number of new purchases during the period in review including Dixons Carphone, the electrical goods retailer and DFS, the UK furniture manufacturer and retailer. Retailers were previously hampered by a squeeze on consumer spending, resulting from prices rising faster than wages, and competition from internet retailers such as Amazon. The manager therefore took the opportunity to invest while investor pessimism was high and share prices were low.

An investment in food manufacturer Greencore was sold after a period of strong performance and global technology company Laird was also sold from the portfolio after the company released a profit warning and cut its dividend.

Outlook

Brexit negotiations are set to dominate the headlines over the year ahead and uncertainty over the UK’s future trading relationship with the European Union will continue to adversely affect business investment, in the manager’s view.

The trust predominantly invests in larger UK companies that operate on a global scale, although Job Curtis also has the flexibility to invest in medium-sized and higher-risk smaller companies. Given the uncertainties, the manager believes the diversified nature of the portfolio, and the quality of the underlying income-paying businesses, should see the trust in good stead.

Please remember all investments fall in value as well as rise and the manager has the flexibility to borrow money to invest (gearing) which magnifies losses when stock markets fall. Potential investors should refer to the latest annual reports and accounts for details of these risks along with the charging structure.

View the City of London Investment Trust factsheet