City of London (CTY) - New research note

[Itsallaguess]

I hold City of London as part of my diversified High Yield Income Strategy, and Kepler Trust Intelligence have this morning released a research note that other income-holders might find interesting to read -

City of London’s (CTY) objective is to provide long-term growth in income and capital. CTY has the longest track record of providing annual dividend increases in the investment trust sector, which now has 54 consecutive years of growth since 1966.

The COVID-19 crisis and market sell-off has left CTY underperforming the market over the short term. However stock selection remained positive in the financial year to 30/06/2020 – as it has been for eight out of the past ten financial years. Being geared in a falling market was the main culprit.

Job Curtis, CTY’s manager for nearly 30 years, has reacted swiftly to events by repositioning the portfolio to reflect today’s new reality. He is a fundamental stock picker first and foremost, looking for defensive companies which can deliver demonstrably sustainable cash flow to support both dividends and capital expenditure. As we discuss in Portfolio, he has increasingly been looking abroad to find companies that suit his criteria. Job has also significantly reduced exposure to sectors such as travel & leisure and energy, in our view making the portfolio more defensive.

https://www.trustintelligence.co.uk/investor/articles/fund-research-investor-city-of-london-retail-sep-2020

Cheers,

Itsallaguess

[Itsallaguess]

Please note, in case it's not clear, that the above research note contains a number of sections, with links at the top of the article to each one (Summary / Analyst's View / Portfolio / Gearing / Performance etc..)

Cheers,

Itsallaguess

[Darka]

Thanks itsallaguess,

I'm happy to hold for the long term along with my other IT's, CTY is a very useful part of my portfolio.

[moorfield]

Also from that link,

The historic solidity of the dividend (see Dividend section) is a key selling point, in our view, which is backed up by the board’s statements of intent – and its not inconsiderable reserves. CTY’s yield is attractive relative to most equity income products, offering a historic yield of 6.1%, with the board signaling that it intends further growth in the current year.

although note its "not inconsiderable reserves" are not liquid (ie. cash or similar).

For those interested and looking for high yield ideas, CTY publishes its full portfolio of holdings here: https://www.janushenderson.com/download/document/124116, knock out those yielding less than 6.1% (which needs a little legwork as indivdual yields are not listed).

[kempiejon]

The COVID-19 crisis and market sell-off has left CTY underperforming the market over the short term.

Some rough eyeballing of charts and it looks to me like like CTY has underperformed/matched the FTSE100 for 1, 3 and 5 year periods. Over that time the yield has been around that of the index only pulling ahead since March. https://www.hl.co.uk/funds/fund-discoun ... ion/charts
Over 1, 3 and 6 months the index is slightly ahead.
Over that time the yield has been around that of the index only pulling ahead since March.

[Arborbridge]

Also from that link,

The historic solidity of the dividend (see Dividend section) is a key selling point, in our view, which is backed up by the board’s statements of intent – and its not inconsiderable reserves. CTY’s yield is attractive relative to most equity income products, offering a historic yield of 6.1%, with the board signaling that it intends further growth in the current year.

although note its "not inconsiderable reserves" are not liquid (ie. cash or similar).

For those interested and looking for high yield ideas, CTY publishes its full portfolio of holdings here: https://www.janushenderson.com/download/document/124116, knock out those yielding less than 6.1% (which needs a little legwork as indivdual yields are not listed).

According to AIC, the not inconsiderable reserves provide a cover of only 0.58 of a year. That cover is far lower than Temple Bar's latest figure before their dividend cut AFAIK.

That doesn't give great confidence that the dividend is rock solid at the moment, though I daresay they will give a 0.1% increase next time and hope companies sort themselves out sooner rather than later. My HYP is hoping the same thing!

[Arborbridge]

The COVID-19 crisis and market sell-off has left CTY underperforming the market over the short term.

Some rough eyeballing of charts and it looks to me like like CTY has underperformed/matched the FTSE100 for 1, 3 and 5 year periods. Over that time the yield has been around that of the index only pulling ahead since March. https://www.hl.co.uk/funds/fund-discoun ... ion/charts
Over 1, 3 and 6 months the index is slightly ahead.
Over that time the yield has been around that of the index only pulling ahead since March.

I think CTY has always been regarded as a closet tracker, though with the supposed advantage that its yield is a little higher. But from what you say, maybe the yield isn't?

Interestingly, I took a small stake in VUKE for the purpose of benchmarking my other holdings, so I'll be keeping an eye on it from now on. However, I am still reluctant to give up on a managed with a mandate, rather than an ETF where in my previous experience they can change the goalposts if they want to.

Arb.

[Dod101]

I simply do not understand the loyalty to City of London. It has quite a few decent shares but also has some horrors (I do not know the date of the portfolio listing though) Holders will of course take comfort from the research note even although any intelligent person could have come to the same conclusion themselves if they were seeking solace.

Anyway they can do what a number of trusts have said they will do and seek the means to support the dividend by distributing realised capital reserves if they have to.

Dod

[Arborbridge]

I simply do not understand the loyalty to City of London. It has quite a few decent shares but also has some horrors (I do not know the date of the portfolio listing though) Holders will of course take comfort from the research note even although any intelligent person could have come to the same conclusion themselves if they were seeking solace.

Anyway they can do what a number of trusts have said they will do and seek the means to support the dividend by distributing realised capital reserves if they have to.

Dod

Loyalty is perhaps overstating it. Not much different to the fact you have owned MUT through thick and thin, even though there are more sprightly performers. I expect we went through similar exercises years back to choose ITs. I've owned Law Deb and City since the 80's I believe, and MUT for a while until I noticed the XIRR was lower than CTY.

MUT was consistently the worse performer, and when I sold (Apr 2018) my XIRR was 6.77% as against CTY's 10.06%. From 2015 when I bought to 2018 it had in every quarter been below the average XIRR for my IT basket, so eventually, I sold it as it was showing no improvement.

Looking at the chart, you can see that MUT is admittedly higher than CTY but there has not been much to choose between them over the majority of the past 20 years. MUT is more volatile, so it depends when you check, of course. The third one I chose to show is Schroder Income growth, which I also have. Luckily, I had investments in Law Deb and FGT which slightly compensated for the other members of the basket.

Check the chart: anyone sitting on FGT or LWDB must be wondering why anyone would have loyalty to either CTY or MUT



Arb.

[Wizard]

I hold City of London as part of my diversified High Yield Income Strategy, and Kepler Trust Intelligence have this morning released a research note that other income-holders might find interesting to read -

City of London’s (CTY) objective is to provide long-term growth in income and capital. CTY has the longest track record of providing annual dividend increases in the investment trust sector, which now has 54 consecutive years of growth since 1966.

The COVID-19 crisis and market sell-off has left CTY underperforming the market over the short term. However stock selection remained positive in the financial year to 30/06/2020 – as it has been for eight out of the past ten financial years. Being geared in a falling market was the main culprit.

Job Curtis, CTY’s manager for nearly 30 years, has reacted swiftly to events by repositioning the portfolio to reflect today’s new reality. He is a fundamental stock picker first and foremost, looking for defensive companies which can deliver demonstrably sustainable cash flow to support both dividends and capital expenditure. As we discuss in Portfolio, he has increasingly been looking abroad to find companies that suit his criteria. Job has also significantly reduced exposure to sectors such as travel & leisure and energy, in our view making the portfolio more defensive.

https://www.trustintelligence.co.uk/investor/articles/fund-research-investor-city-of-london-retail-sep-2020

Cheers,

Itsallaguess

My bold.

Interesting to see this highlighted.

[funduffer]

According to the AIC, the top 10 holdings in CTY as of 31/8/20 were:

British American Tobacco PLC 4.3%
Unilever PLC 4.0%
Diageo PLC 3.6%
GlaxoSmithKline PLC 3.4%
RELX PLC 3.1%
Rio Tinto PLC 3.1%
Reckitt Benckiser Group PLC 2.7%
Prudential PLC 2.5%
Phoenix Group Holdings PLC 2.4%
AstraZeneca PLC 2.4%

Not many cutters in that list, if any (I haven't checked).

FD

[funduffer]

he has increasingly been looking abroad to find companies that suit his criteria.

Interesting to see this highlighted.

You are right, the AIC data shows N America now forms 8.6% and Europe 7.3% of CTY's portfolio (as of 31/8/20)

CTY used to be nearly 100% UK, so it has been busy diversifying overseas.

FD

[88V8]

That's rather natty. You should go into producing fine art papers.

V8

[Charlottesquare]

he has increasingly been looking abroad to find companies that suit his criteria.

Interesting to see this highlighted.

You are right, the AIC data shows N America now forms 8.6% and Europe 7.3% of CTY's portfolio (as of 31/8/20)

CTY used to be nearly 100% UK, so it has been busy diversifying overseas.

FD

Good- saves me doing more via wholly overseas focused ITs. (though its holding before certainly had significant exposure to overseas earnings)