City of London is one of my steady, predictable,
middle-of-the-road income trusts. It feels like a dependable, faithful old
carthorse. 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).
Results
City have just announced full year results for the year to 30th June 2017 (link via Investegate).
Share price total return has increased by 16.7% over the year and moved from marginal
discount to a premium of 1.8% above net assets. The performance was however
less than the FTSE All Share benchmark of 18.1%.
Dividends have increased by 5.0% from 15.9p to currently 16.7p giving a yield of 3.9%. This represents over 50 years of rising dividends - quite an achievement if you think back to the start of this run when England last won the World Cup in 1966 - I remember it well! Dividend reserves were bolstered by the addition of a further £4.7m which translates to an increase of 0.8p per share to 14.3p.
Earnings per share rose by 2.3% to 17.8p, mainly reflecting the underlying dividend growth from investments held of 4.6%.
Dividends have increased by 5.0% from 15.9p to currently 16.7p giving a yield of 3.9%. This represents over 50 years of rising dividends - quite an achievement if you think back to the start of this run when England last won the World Cup in 1966 - I remember it well! Dividend reserves were bolstered by the addition of a further £4.7m which translates to an increase of 0.8p per share to 14.3p.
Earnings per share rose by 2.3% to 17.8p, mainly reflecting the underlying dividend growth from investments held of 4.6%.
This is a UK income trust and therefore the majority of
holdings are listed on the FTSE. Large companies (FTSE 100) now account for 69%
of the portfolio, medium companies 19% and overseas-listed companies 12%.
Ongoing charges are 0.42% and remain the lowest in the sector.
Passive Index
Ongoing charges are 0.42% and remain the lowest in the sector.
Passive Index
For the first time, there is a comment on the rise of
competition from passives. "There has been much recent comment extolling the virtues of
passive investment strategies, on the basis that active managers charge much
higher fees and rarely outperform their benchmark index over the long term".
Although
the trust has underperformed the benchmark index over the past year, the
Chairman responds :
"This is not an accusation that can validly be levelled
against City of London. Our ongoing charges ratio of 0.42% is the lowest in the
AIC UK Equity Income sector and is very competitive with the OEIC market, with
most other investment trusts and with other actively managed funds.
City of
London has outperformed the FTSE All-Share Index over each of the last three,
five and ten year periods. If you had invested £10,000 in the Company ten years
ago and reinvested the dividends, your investment would be worth £21,908,
compared with the £16,847 that same investment would now be worth had you
tracked the FTSE All-Share Index over that period.
While investors may be content to replicate an index in a
rising market, they may not be so sanguine when share prices are falling: there
is a danger that the automatic buying and selling of stocks which is inherent
in index tracking aggravates extremes in share price valuations.
It also remains to be seen whether passive funds such as
Exchange Traded Funds provide sufficient liquidity in a bear market because
they have not been tested in their current size. By contrast, City of London's
gross assets now exceed £1.5 billion and its market capitalisation stands at
just under that figure. Our size means that we provide investors with a ready
liquid market in our shares and our closed end status enables us to ride out
market setbacks without being forced into selling sound investments at
inopportune moments."
The fact that such comments have to be made suggests the
actively managed sector are worried about the threats posed by the rapidly
growing market share of index funds.
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CTY v Vanguard UK All Share Index 2010 to 2017 (click to enlarge) |
I have been reducing my exposure to UK equity over the past year (shares/ITs) however, given the track record of this trust under the stewardship of Job Curtis, I am happy to continue holding CTY for the foreseeable…
As ever, please DYOR