Focus on Investment Trusts: City of London

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LIKE the name suggests, City of London Investment Trust is more of a British belt and suspenders than Silicon Valley jeans and sneakers. It is a traditional trust, built on solid investment values. Its focus on dividend growth, capital stability and its portfolio of familiar British blue chips has resonated with a generation of investors and it now sits at around £ 1.7bn.

Its latest results, published on September 21, did not hold any surprises, just as its investors prefer. The trust continued to increase its dividend for a 55th consecutive year, confirming its status as a “Dividend Hero,” a coveted Investment Companies Association badge awarded to trusts with a strong track record of increasing payouts to investors. shareholders.

However, the trust had to dip into its reserves – £ 14.4million last year and £ 8.1million this year after an “avalanche of dividend cuts, cancellations and omissions”. This is an important advantage of the investment trust structure, which allows dividends to be kept in reserve during good years to support payments during bad years. This is a good example of this process in action.

The performance of capital has been more difficult. Its defensive portfolio, centered on strong British blue chips such as Unilever, Diageo, Rio Tinto or BAE Systems, has been deeply outdated at a time when investors wanted technologies with high growth (in 2020) or beneficiaries of the recovery (in 2021). ).

However, its investors are often not there for capital growth. The rising dividend makes it a natural fit for those who want income that beats inflation and increases reliably over time. It also emphasizes good old-fashioned value for money. Its ongoing charges are only 0.36%, about half that of an average active fund and closer to the cost of a tracker.

Today, confidence is focused on UK financial firms, such as asset manager M&G and insurer Phoenix Group, with longtime manager Job Curtis saying UK financials appear to be poorly rated relative to their international peers . He also enjoys supermarkets, holding Tesco and Morrisons. The recent offer for Morrisons, he says, shows international buyers believe there is value in the industry. He sold Renishaw and Spirax Sarco during the year, where the stock prices were too high.

It should be mentioned that the trust’s largest stake is in British American Tobacco, which manufactures Dunhill and Rothmans. It also lists Imperial Brands (owner of Gauloises and Rizla) among its top ten titles. This will not be right for everyone, with tobacco being firmly excluded from the wish lists of many investors for environmental and social reasons. For Curtis, the appeal lies in high yields, strong cash flow and low valuations, but he recognizes that this is a controversial choice at a time when many investors are increasingly focusing on environmental, social and governance parameters. This is a clear sign of his determination to stick to the process that has served confidence well for many decades.

Learn more about City of London Investment Trust


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