City of London Investment Trust Review

On a quiet day for stock market announcements I took the opportunity to read the Annual Report of City of London Investment Trust (CTY). This is a share I have held since 2011 and is one holding in my portfolio that is quite boring and defensive in nature. It is an income and growth trust focussed on UK listed equities and is actively managed.

Since 2011 I have achieved 11.2% per annum average total return on this share in my portfolio. Job Curtis has been the fund manager for even longer than that and has a good performance record although the trust went through a bad patch in 2020. But last year (to end of June) it did remarkably well – a NAV Total Return of 7.5% versus its FTSE All-Share Benchmark of 1.6%.

How did Mr Curtis achieve that? Not by active trading because he is very much a buy and hold investor and with such a large trust it is not easy to move the portfolio rapidly. But the performance benefited from holding the traditional large FTSE-100 stocks.  The top ten holdings in descending size making up 32% of the portfolio were British American Tobacco, Shell, Diageo, BAE Systems, RELX, AstraZeneca, HSBC, GlaxoSmithKline, Imperial Brands and BP.

Note the big focus on tobacco stocks and oil/gas companies! Just to emphasise the lack of attention to ESG prejudices two other big holdings were an alcohol producer and a defence company.

The focus on larger companies paying high dividends and away from highly valued growth stocks and medium/small companies helped and the war in Ukraine resulted in BAE being the biggest contributor to performance. Energy shortages which resulted helped the oil/gas companies also no doubt.

It’s clear that some of these holdings have pricing power which must help in inflationary times. People won’t give up smoking and drinking in a recession and strong branding also helps.

A combination of macro-economic factors and past judicious stock picking while ignoring the public prejudices against some sectors seems to have been the cause of the good performance of the trust last year.

I will continue to hold.

Roger Lawson (Twitter:  )

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