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The City of London Investment Trust
Investment trust
Launched in 1891, this is one of the longest-running investment trusts in the UK. It aims to provide growth in income and capital by investing predominantly in larger UK companies with international exposure. It has increased its dividend payment every year for the past 53 years.
Our opinion
This is a well-established income and growth trust, run by a very experienced manager - Job Curtis. His thorough research process and a conservative approach to stock selection has generated steady returns over an extremely long period of time. Maintaining dividend income is of the utmost importance to the board, making the City of London Investment trust an excellent core option for investors wanting UK equity exposure.
Trust manager
Janus Henderson Investors manages this trust. The company was formed in 2017 following the merger of Janus Capital Group and Henderson Global Investors. The business has more than 2,000 employees and offices in 28 cities worldwide. Funds are managed by autonomous teams with distinct investment strategies.
City of London Investment Trust has been managed by Job Curtis since 1991. He has 36 years’ industry experience and started his career as a trainee stock broker in 1983. Job joined Henderson Global Investors in 1992, when it acquired Touche Remnant, where he was employed as a fund manager.
Job is assisted in the management of the portfolio by David Smith who joined in 2002; Andrew Jones who joined in 2005 and Laura Foll who joined in 2009.
The trust is very good value: it charges a management fee of just 0.365% per annum for the first £1 billion of net assets, reducing to 0.35% of net assets above £1bn. Fees are payable quarterly.
I have a conservative personality and it is reflected in the portfolio. I pay attention to the downside risks as well as the upside potential.
Job CurtisTrust manager
Investment board
The trust’s board comprises of five members and is chaired by Philip Remnant CBE. Philip has been a non-executive director and the senior independent director of Prudential PLC and a member of its Audit, Nomination and Remuneration Committees since January 2013. He is also deputy chairman of the Takeover Panel, a non-executive director of Severn Trent plc and senior independent director of UK Financial Investments Limited.
The other board members are Simon Barratt, Martin Morgan, Samantha Wren and Ted Holmes. They have a wealth of experience, particularly in the areas of investment management and accountancy. The board meets with the investment team seven times a year and the company year-end is June 30.
Investment process
Job focuses on companies which have the ability to pay and increase their dividends over time. He pays close attention to valuations and is careful not to overpay when he initiates positions. He particularly likes companies with a competitive advantage and has historically favoured multi-national brands with stable earnings and growth prospects. He has a bias towards large caps, with 60% of the portfolio typically held in companies which sit in the FTSE 100.
Job aims to provide shareholders with dividends that are between 10% and 30% higher than the average for the UK equity market. Dividends are distributed quarterly.
Risk
This trust invests primarily in UK equities, although it does have the flexibility to invest up to 20% in overseas equities. Stock specific risk is somewhat mitigated by the number of stocks Job holds, which is typically around 100.
Gearing
The manager is able to employ gearing when appropriate in a bid to enhance returns over the long-term. Other than in exceptional market conditions, borrowing will not exceed 20% of net asset value. The long-term gearing target is between 0% and 20%. Up to 10% of the net assets can be held in cash. Selling traded options where the underlying share is held in the portfolio can be used to generate income. Buying and selling FTSE 100 Index Futures can be used to increase or reduce gearing.
Gearing increased to 11.9% at the end of 2018 (vs. 7.7% in June 2018) as advantage was taken of improved share price valuations with the overall weakness in the equity market.
The company has a mix of fixed and variable loan facilities in place, providing funds for the manager. Some of the fixed borrowings are quite expensive, but they are due to be repaid in 2020 and 2021. The value of long-term borrowing is relatively small in comparison to the value of net assets.
In November 2017 City of London Investment Trust issued £50 million of fixed rate 32-year private placement notes at an annualised coupon of 2.94%. The board decided to take out this additional loan to secure long-term fixed funding at an attractive rate.
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