City of London Investment Trust Annual Report

I have been reading the City of London Investment Trust (CTY) annual report in advance of their AGM on the 28thof October. This is one of my oldest shareholdings – first purchased in 2011 with an annual total return since of 11.5% p.a. according to Sharescope. Historically it has been a good performer, if somewhat boring. That’s OK but last year was a disappointing one. Has Job Curtis, the long-time manager, lost his touch?

Last year the trust supplied a share price total return of 20.0% but that was less than the FTSE All-Share and the 26.4% reported by the AIC UK Equity Income Sector.

CTY is a UK “Growth and Income” trust and has a focus on higher-yielding “value” shares as it says in their annual report. For the second year running they had to draw on revenue reserves to enable them to maintain their record of increasing dividends.

But one only has to look at the top ten holdings to see why performance is not brilliant as it’s stuffed full of FTSE-100 shares such as British American Tobacco, Diageo, Rio Tinto, Unilever, M&G, RELX, Shell, Phoenix, BAE Systems and HSBC. The Fund Manager’s report notes that stock selection generated -3.80% of the performance. They did well from holdings in big miners such as Rio Tinto, BHP and Anglo American, didn’t we all, but not holding Glencore was a big detractor. They had a number of other holdings that detracted.

It may be unreasonable to take one year’s performance as indicative of likely long-term performance but are tobacco and oil companies really good investments at this point in time, however generous their dividend yields? More emphasis on growth and less on income might be appropriate I suggest.

The trust also has a large number of holdings – the top 40 only represent 76% of the portfolio. It looks over-diversified although given the size of the fund there may be good reasons for this.

The Fund Management company is Janus Henderson and it’s interesting to note in the history of the company, which they expand at length on in the annual report, that it used to be called TR City of London when Touche Remnant was the manager. After they were acquired by Henderson, the company was simply renamed “The City of London Investment Trust”. A wise move to disassociate the company name from that of the fund managers which was likely to change over time. The new name might not have been ideal though as there is another listed company named City of London Group and it hardly a good or registrable trade mark. The directors of Standard Life UK Smaller Companies Trust (SLS) who are about to make a mistake over a new name should bear that in mind.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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