Thursday, 17 September 2015

City of London - Final Results

Last week I was a little underwhelmed by the results of Murray Income investment trust. This week it’s the turn of CTY, also in the UK income sector.

City of London is one of my steady, predictable, middle-of-the-road income trusts. In my corresponding post two year ago I referred to CTY as feeling like a dependable, faithful old carthorse.

City have just announced full year results for the year to 30th June 2015 (link via Investegate). Share price total return has increased by 7.2% over the year compared to the FTSE All Share benchmark of 2.6%. Dividends have increased by 3.6% from 14.76p to currently 15.30p giving a yield of 4.0%.  Reserves were bolstered by the addition of a further £3.83m. The dividend was increased for the 49th consecutive year.

2 yr chart - City of London v Murray Income
(click to enlarge)

Earnings per share rose by 9.8% to 16.84p, partly reflecting the underlying dividend growth from investments held - 7.2% - but also the rise in the US dollar compared with sterling, enhancing the sterling value of dividend payments from those UK companies which declare their dividends in US dollars. In addition, special dividends rose from £1.29m last year to £4.21m.

Ongoing charges are 0.42% and remain the lowest in the sector.

Over the year there was again a reduction in the weighting in large companies with a corresponding increase in the weighting of medium-sized companies.  Large companies (FTSE 100) now account for 66% of the portfolio, medium companies 23% and overseas-listed companies 11%.

Relative to the FTSE All-Share Index, City of London benefited from being significantly underrepresented in the oil and mining sectors. The best three stocks held in the portfolio which contributed to performance were all housebuilders: Taylor Wimpey, Persimmon and Berkeley Group.
This trust is possibly the nearest proxy to a HYP portfolio often discussed on the Motley Fool discussion boards.

I first purchased CTY for my personal equity plan (PEP) in 1995 - it has served me well enough over the past two decades and it represents the largest weighting in my IT portfolio (ISA and SIPP drawdown)…and yes, it still feels like a dependable, faithful old carthorse. Total return over the past 10 years has been 9.5% p.a.

The trust has been managed by Job Curtis since 1991. This is a seriously long stretch as a fund manager and I am wondering how much longer he will carry on - maybe after 25 yrs he will decide to call it a day - who knows?

Unlike Murray Income trust and Murray International which have disappointed over the past couple of years, I am happy to continue holding CTY for the foreseeable…

As ever, please DYOR


  1. Hi diy

    A good result! I won't do my usual argument and say that there are better opportunities out there. As you know i am an advocate in actively managing my portfolio and seeking the best results, but that is a good return from the last 10 years and i can see no reason not to continue to hold it.

    When you compare it to the FTSE100 over the 10 year period it seriously beats it and think adds to my proposition not to go down the Tracker route.

    If he retires is a question and maybe you need to start investigating some alternatives before he does. A little bit of research may lead you to something similar and better than trackers, which you may find in the UK market will work better for you.

    Perhaps a bit of C F Woodford Equity Income and dip your toes in the fund market?



    1. Gareth,

      Indeed a good performance by Job Curtis over many years so I think we can rule out luck!

      Passive or active debate will run and run - I now have a foot in both camps but for several reasons am becomming more and more persuaded by the index route camp.

      I am currently reading 'Smarter Investing' by Tim Hale (3rd edn.) and he makes some very good arguments - I hope to post a review shortly.

      There is an interesting post by Ben Carlson today 'Index funds are nothing special' which is worth a read.

      One of the arguments against active is how difficult it is to identify managers who will outperform at the start of the process - who could know in 1991 that Curtis would continue for 25 yrs and provide above average returns for his investors in CTY. For every Curtis there must be 9 other managers who have underperformed or no better than average.

      The rear view mirror is a wonderful thing.

      Yes Woodford continues to do the business - he seems to have the midas touch!

      As ever, thanks for dropping by with some talking points but no reason not to continue down the low cost index route whilst retaining the best of what has served me well to date.

    2. This comment has been removed by the author.

    3. diy

      I agree that trying to identify active managers that will perform in the future is not the easiest act in town.

      You keep referring to not knowing at the start if they will outperform, and that using "The rear view mirror is a wonderful thing." So I assume you have not achieved the returns you would have expected from your Active manager selection and that is why you have now gone for the the Tracker solution.

      Yes none of us know the future, but we do know the past and we all get it wrong when going forward, but that does not discourage me to attempt to get it more right in the hope and usually the chance to get it right i.e. "Woodford .. seems to have the midas touch"

      You you have plenty of evidence for those who have outperformed, but assume you have been disappointed by there forward results and have now reverted to FTSE100/Allshare trackers.

      I have found from experience it is possible to identify a group who will generally beat the Indices and if some fail, then the overall result will generally still be better whereas if you select a FTSE 100/Allshare tracker you have no chance of beating the market. All the evidence I see is that once you go to managing in a drawdown situation i.e. not adding anymore capital, then it is more worthwhile to try to identify those managers who could outperform and the evidence suggests that it is worthwhile to do. Personally I am happy to achieve a 4% dividend and 3-4% growth from my portfolio, which should maintain my purchasing power, anything above that is a bonus and that is how I have built my approach i.e. a targeted approach.

      I would love to find a FTSE250 tracker that manages to achieve my aims for both dividend and growth,plus the out-performance as I believe the FTSE250 is the best place to look for best growth, but the average dividend is too low for me and I do no like to be forced to sell capital to generate income, especially if the market is on a correction. Although the results do give me pause to reflect on my strategy as I always keep researching to see if I can improve on my methodology!

      I have attached some links that I used for my research;So maybe some areas for you to consider as possible trackers:,-prices--and--factsheets/search-results/h/hsbc-ftse-250-index-accumulation-inclusive/charts

      As always an interesting discussion as to how to invest for the future and it keeps me looking for the best methodology going forward based on the best evidence we have, past track record.

    4. Gareth,

      Many thanks for your full response and links.

      I made a little more progress with 'Smarter Investing' yesterday and I am ever more convinced the better route for me is the low cost, globally diverse index approach with a nice balance of equities/bonds.

      This is probably not the place to go into detail but if you have not read the book, it may be worthwhile getting your hands on a copy as I am sure you would benefit. It is a little expensive but I borrowed a copy from my local library!

      For the time being, I think we are not going to agree 100% - which is probably not a bad thing as I do think there is no perfect investing strategy or any single best portfolio to outperform all others.

      For the time being, I wish you well with the active managers who continue to beat the market.

    5. Hi diy (I have had to split my posting as your site will not accept it in one)
      I think we have reached the point that we will both disagree. I have given links to several information points, but I have received back mainly generalizations regarding these. I have read a lot on the virtues of active vs passive investing (plus information from the Investment Advisers Iused to deal with, some of whom advocated Passive investing) and how to build a portfolio investing across the world, which you would expect given the job I used to do. I think there are many merits to the methodologies these advocate, especially for the majority of people who are not financially savvy (I do not necessarily include you in this group).
      The key points they make are:
      It is a Zero sum game - for every winner there will be a loser. Yep that is true, but it is also true in real life - we all enter the game of life and end up in different positions - some more winners and some more losers. So what is new!
      Most Active managers do not beat the market - I agree most of them are woeful and aren't worth the fees they charge!
      It is difficult to identify good managers - Yes it is and it takes time and effort to do so. However, I believe it can be done and have a 20 year track record to say that I have done it at least as well as the market (if not better) including costs. Yes mistakes will be made along the way, but that is what life is about and learning from them.
      Financial Advisers - Yes they prescribe a certain way to invest dependent upon the boxes that are ticked, which is not really advice pertinent to what someone actually wants. They are required to so by the training and exams they take.
      Most of the advice is prescribed to investing with a Bond/Shares mix (with some international diversification) - However, there are so many caveats that if you withdraw at the wrong time i.e. when the markets are low you can run out of capital before you die.
      I have seen very little information that targets the way I want to invest. Draw the natural yield from my portfolio without having to touch the capital to pay the income level I want. The ups & downs of the market do not matter as I am not touching my capital and it will fall and rise as the "noise" in the markets continue, but over the long term it will rise and increase the value of my dividends to support me. I have spoken to a number of wealth managers who want my business, which is not insignificant and they all say similar things:
      We will sell some of the investments from time to time to provide you with the income - but that is not the same as drawing the natural yield as if you sell at the wrong time, you are eroding your capital
      We use CFD's etc. - I run a mile as soon as they say this as that has to be the most Zero game in the market.
      We have the best investment strategy - Oh yes, but you want to use my money to do it and earn from it. I don't believe you! If you are that good, you don't need my money and you can make enough doing it yourself.

    6. You must have bonds in your portfolio - Why, because they act as a counter-balance to shares when they are not doing well. That only applies if you are drawing down from your capital to fund your income. My methodology does not involve drawing capital to fund income therefore the need for bonds is irrelevant as shares will beat bonds over the long term.
      If you want to buy an annuity - then bonds give you the best match to phasing into an annuity. I have no intention of buying an annuity, so why would I want to invest in bonds.
      No manager can beat the market all of the time - Yep true, even the greatest have had times when they did not beat the market, but the key issue is the result over the longer term! And there are a few managers with record with the right performance. With the UK market still lower than it was at the end of 1999, anyone who investing with a lump sum in a tracker and drawing down the dividends would be worse off today than they were in 1999, even worse if they had been withdrawing capital.
      My final point is that anyone who produces a book advocating a certain approach and charges quite highly for it is not necessarily the most neutral of people to believe. There are lies, damned lies and statistics (although I do accept that Warren Buffet has advised his trustees to invest in a tracker, but note that the US market is probably the largest and most sophisticated in the world and that it has produced better returns than the UK market, and is probably one of the few markets where I would use a tracker).
      My main concern and why I have taken the time to put these postings up, is that people who are seeking a path to understanding get shunted down 1 route as opposed to understanding that there are different ways that one can go. My methodology involves targeting a certain strategy including both shares and funds across the world using trackers if appropriate (USA for example)
      I wish you success with your new methodology and will no longer comment on it.

    7. Gareth,

      Again, thanks for the full response - you make some good points.

      I agree we will not be in agreement - maybe a year or two back I would have been more in agreement but my experience combined with the extensive research I did for my latest book and combined with covering the many articles I have read bring me to re-evaluate my strategy and to embrace index investing.

      Each investor will work out the best approach for themselves - the purpose of this blog is not to persuade readers to do what I do is best, far from it.

      As you say, there are many different ways to go. I said in a previous comment there are many ways up the mountain. What works for one may not work for another. Your strategy works for you and has provided above average returns for 20 yrs - why would you want to change anything - as they say, if it ain't broke, don't try to fix it.

      Again, good luck for the future.

  2. Hi DIY
    Looks like you've done very well with this one. A talented manager, great fund house and low costs. What's not to like?
    Well I've looked at CTY on and off during the last two years but have not bought due to the slight premium to NAV. It's a small premium but with lots of other good quality investment trusts on discounts, my eye has wondered elsewhere.
    Chris S

    1. HI Chris S

      Where did your eye wonder, I'm intrigued to know?

    2. Chris,

      I agree, there's not much not to like.

      Its always a bit of a gamble buying on a premium but unlike many others in the sector, it has been maintained for quite some time so must be popular.

      It can change - Murray Intl. traded at a significant premium to NAV for many years when it was outperforming but over the past year it has reversed and now at a significant discount - a double-whammy for holders!

  3. Hi Gareth.
    I bought Bankers IT instead. It's classed as a 'Global' fund by the AIC but does have c. 40% in UK stocks so it is a more diversified animal than City IT (which is in the UK Equity Income sector). Bankers IT has been on a discount of -2 to -6 in the past year and has the same fund house behind it, and the same low costs as City IT. The buy rationale was simply that there's more downside risk in buying at a premium.

    Out of interest I looked at the AIC stats today, and over 10 years on a TR basis Bankers has outperformed slightly (252% v. 247% for City). But of course that's irrelevant as the two have different targets and stocks.

  4. Thanks for the right up, diy. I have a small holding in CTY and intend to top this up at some point.

    1. weenie,

      I guess the recent pull-back in the markets will provide a few buying opportunities so good luck with CTY.

      I like the balance of your IT portfolio - I have held Bankers for many years but decided to off-load earlier this year (probably a mistake!).

      Also, Scottish Mortgage has been on my watchlist for some time but with its lower natural yield, I would need to have a sizeable investment to make selling off some shares to provide 'income' affordable so I will probably not purchase - I think it should do well over the longer term.