Saturday, 23 September 2017

City of London Trust - Full Year Results

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).


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%.

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

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.

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


  1. Ciao DIY,
    I am an holder after reading your blog. Of course did all the research that I could come up with and was convinced by the "predictability" that this IT offers. Investment strategy is quite similar to the one I do with single stocks so it made sense to add them to the basket. I have had quite a bad experience with mid caps from the uK recently, so I have decided to stop risking on this sector as I did before, the allocation will now go to bigger companies, and CTY represents a good way to invest like that.
    What do you think on MRCH?
    Ciao ciao

    1. Stal,

      Good to hear from you...your home of Florence was in the news yesterday hosting out PM speech on Brexit!

      I imagine CTY will hold many of the shares you have selected for your UK portfolio. It has underperformed the All Share as it was underweight in mid cap shares which suggests that sector has done well over the past year or so but I think they took a sharp dip towards the end of June 2016.

      Merchants trust seems to do OK but the last time I looked it had high gearing levels so that would be a sign of caution for me. It has lagged CTY by ~7% over the past 3 years.

      I hope your options continue to add a little extra to your returns..I will look out for your next update.

  2. It's a decent result for the year. And an excellent innings to have 50 years of increasing dividends - given the several booms and busts. I went to their website but couldn't find info on their core holdings, do they list them anywhere?

    1. Click the link to the results and scroll down half way - top 40 holdings listed.

  3. The fund literature produced by the manager (Janus Henderson) doesn’t mention the ‘active share’ that other managers (eg Baillie Gifford) make quite a lot of. And you don’t mention it either.
    Do you know what it is? And by not mentioning it, do you not put much importance to it?

    1. Chris,

      I had not heard of this term before today so thanks for raising it.

      It seems to be a measure to distinguish actively managed funds from closet trackers. I do not consider CTY to be such a fund and also it has low charges.

  4. CTY is one I will continue to invest in. Since I hold passive investments too, it will be interesting to see which ones hold up better in a bear market.

    1. weenie,

      Congratulations on passing your recent milestone! We share many of the same ITs - CTY, Edinburgh, Temple Bar and Scottish Mortgage so I hope they continue to do well and they help you towards the next target.

  5. Hi DIY,
    As others above have commented, this is now one of my holdings - their track record is great and I will continue to reinvest the dividends over the years. I look forward to another 50 years of growing dividends, and hoping I manage to live that long to enjoy them :)

  6. I used to have a large holding in City of London inv. trust but over the last few years I have simplified my portfolio to just 5 ETF's. I have exchanged CTY for a FTSE 100 etf and am happy with the results. I am happy with ETF's and see no problem with any coming bear market. I was mostly in Investment trusts during the financial crisis and they took a beating just like other equity products.