City of London Investment Trust: November 2023 trust update

• Job Curtis is one of the most experienced UK equity income investors and began managing this investment trust in 1991
• The trust has increased the dividend it’s paid to investors for 57 years
• The trust aims to provide long-term growth in income and capital by mainly investing in large UK companies

How it fits in a portfolio

City of London Investment Trust aims to provide long-term growth in income and capital by mainly investing in large UK companies. Job Curtis looks for companies that generate plenty of cash to pay dividends and are conservatively run, in his view. This trust could form part of an income portfolio or a broader portfolio looking to add investment in larger UK companies.

When investing in closed-ended funds you should be aware the trust can trade at a discount or premium to net asset value (NAV).

Manager

Job Curtis has managed City of London Investment Trust since July 1991. This length of tenure is rare to see. He began his career in 1983 as a graduate trainee at Grieveson Grant stockbrokers, before joining Cornhill Insurance as an assistant fund manager from 1985 to 1987 and then Touche Remnant as a unit trust and investment trust manager. Following Henderson’s acquisition of Touche Remnant he subsequently joined Henderson in 1992. He works within a well-resourced and experienced team which includes highly regarded income investors such as Alex Crooke and Ben Lofthouse.

David Smith is deputy manager of the trust. Smith has managed the Henderson High Income Trust plc since 2013, the UK portfolio of The Bankers Investment Trust plc since 2017 and has worked with Job Curtis for a number of years.

Process

The trust invests in good quality, well-managed companies, which can be bought at a reasonable share price and contribute to the trust’s dividend. Job Curtis believes companies with sustainable and rising dividends will see their share prices grow over time. He likes larger, more stable companies which often have multinational operations that are robust enough to weather economic storms and still pay dividends. This provides UK investors with exposure to global growth through the portfolio’s overseas revenues. Curtis mainly invests in UK companies, although he can invest up to 20% overseas when he finds good opportunities. As of June 2023, 15% of the trust was invested in companies listed overseas, down from 17% a year earlier.

Over the last year, Curtis has made some changes to the portfolio. He’s increased the trust’s investments in companies listed in the FTSE 100, which are the largest companies in the UK. Curtis also added six new investments to the trust. One of these was Glencore, with the manager believing that the business is well positioned in metals to benefit from the transition to cleaner energy. The manager also bought shares in UK bank NatWest on the basis that the business is trading at an attractive valuation and is benefiting from more supportive financial conditions with higher interest rates allowing it to earn better margins. 

The manager also sold a few investments from the trust. One of these was Microsoft, which has been held in the trust for around 12 years. The position was sold after the shares performed well following investor excitement around the company’s potential to benefit from the growth in AI. Chemical company Croda was also sold following a downgrade to its profit expectations.

The trust also borrows money to invest with the intention of increasing returns (sometimes known as gearing) which increases risk. At the end of the trust's last financial year in June 2023, gearing stood at 6.2%, down from 7.1% a year earlier. The manager can also use derivatives, which if used adds risk.

Culture

Janus Henderson Investors is a large investment firm with offices all over the world. It was formed in 2017 from the merger of two long-established groups– US-based Janus Capital Group and Henderson Global Investors.

It values experience, and fund managers at the group have on average over two decades of investment experience. Sharing knowledge and ideas between investment teams is an important part of the culture. Managers have the flexibility to tap into the wider group’s resources for ideas and insights, but also have the freedom to do their own research and form their own views without having a ‘house view’ placed on them.

ESG integration

Curtis integrates environmental, social and governance (ESG) factors into his company analysis. Curtis focuses on ESG factors which may impact profits, cash flow and dividends and ensuring that companies have robust policies and processes in place to manage these risks. As a long-term investor, he believes this could help to drive long term dividends and also uncover risks that are less obvious through more traditional company analysis. The aim is to highlight businesses that use more sustainable practices and could thrive over the long term.

Janus Henderson aims to be a responsible steward of investors’ money, and ESG is an important part of this. All fund managers have access to ESG scoring models and customised ESG research, but the firm believes ESG considerations should go beyond examining numbers. Company site visits, speaking to workers and questioning company management are just some of the ways fund managers are expected to actively assess a company’s ESG credentials.

Investment teams across Janus Henderson actively engage with the companies they invest in, and the firm’s longstanding Governance & Stewardship team provides centralised support on voting and engagement. The ESG Investment Research team carries out ESG analysis with a consistent methodology across markets with a focus on financial materiality.

When it comes to voting, Janus Henderson has a Proxy Voting Committee, which is responsible for establishing the firm’s position on major voting issues and creating guidelines overseeing the voting process. The Committee is comprised of representatives from various business areas, including portfolio management, corporate governance, accounting and compliance. The firm’s full proxy voting history is published annually, although no rationale is provided. There is more detail on voting and engagement, including case studies, in the firm’s annual ESG Company Engagement & Voting Review report and the ESG Quarterly Review – a summary of the firm’s ESG related activities.

Cost

The ongoing annual charge over the trust’s financial year to the end of June 2023 was 0.37%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure. If held in a SIPP or ISA, the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. Our platform fee doesn’t apply if held in a Fund and Share Account.

Part or all of the annual charge is taken from capital rather than income generated. This could result in a higher dividend yield but can limit capital growth.

As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

The trust has performed strongly over the manager’s tenure which began in July 1991 and is well ahead of the FTSE All Share index* over that period. In recent years they have made effective use of revenue reserves built up in the good times, meaning the trust continued to increase the dividends paid to investors through the difficult coronavirus period. This was in spite of many UK companies cutting or suspending their dividends amid the uncertainty.

In the trust’s last financial year, the dividend paid to investors increased by 0.5p to 20.1p per share, which was covered by its revenues. This extends the trust’s record as the investment company that has increased its dividend each year for the longest period – now standing at 57 years. As always, past performance isn’t a guide to the future. Dividends are variable and not guaranteed.

Over the trust's last financial year to the end of June 2023, the trust’s net asset value (NAV) rose by 4.5% with the share price rising by 4.1%. This compares with a return of 7.9% for the FTSE All Share index over the same period, and an 8.1% gain for the AIC UK Equity Income sector.

The largest detractor from returns over the year was insurer Direct Line, which suffered from the premiums it receives from providing insurance, not keeping up with the rising cost of claims. House builder Persimmon was also a notable detractor as its share price reacted to the slowdown in the UK housing market. The biggest contributor to performance over the year was private equity company 3i. Its performance was driven by the company’s investment in a European discount retailer.

At the time of writing the trust trades at a premium of 0.03% and has a dividend yield of 5.23%, although remember yields are variable and aren’t a reliable indicator of future income. All investments and any income they produce can fall as well as rise in value, so investors could get back less than they invest.

Annual percentage growth

Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2023.

FIND OUT MORE ABOUT CITY OF LONDON INVESTMENT TRUST INCLUDING CHARGES

VIEW CITY OF LONDON INVESTMENT TRUST PLC KEY INFORMATION DOCUMENT

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