The City of London Investment Trust has published results covering the year ended 30 June 2021. It just failed to match its benchmark over the period – returning 20.0% in NAV terms and 21.3% in share price terms against 21.5% for the All-Share Index. It also underperformed its peer group – the AIC UK Equity Income sector returned 26.4% over this time. The trust is now lagging its benchmark over five years.
The dividend was increased marginally from 19.0p to 19.1p. 2p per share of this came from its revenue reserves as the revenue earnings per share for the period were 17.1p. At the end of June, the revenue reserve per share was 8.4p.
The small dividend increase maintains the company’s dividend hero status – it has now increased its dividend every year for 55 years. The revenue account was helped by lower borrowing costs. Interest charges were reduced by the redemption of the £30m 8.5% debenture on 31 January 2021 and its replacement with a £30m Private Placement Note carrying a fixed interest rate of 2.67% for a term of 25 years.
The chairman’s statement notes that in general, large capitalisation, defensive stocks, which had performed well in the early stages of the pandemic and continued to pay dividends throughout, disappointed overall during the period under review. City of London has greater exposure to such companies than most competitors.
Despite the underperformance, investors remain fans of the trust. £106.1m worth (net) of shares were issued during the year.
New deputy manager
David Smith has been appointed deputy fund manager. QuotedData readers will know David as the fund manager of Henderson High Income Trust (a position he has held since 2013). He is also manager of the UK portfolio of The Bankers Investment Trust (since 2017). He has regularly attended City of London’s board meetings for the last three years. He is said to have a close working relationship with Job Curtis, having been a member of Janus Henderson’s Global Equity Income Team for nine years.
Manager’s report
“With City of London being geared between 6.9% and 12.0% while the equity market was rising, gearing contributed positively by 2.49%. Stock selection detracted by 3.80%, mainly due to the portfolio’s bias towards large, defensive companies. Verizon Communications, Nestlé, Novartis, Merck and Munich Re were all in the top seven stock detractors but had performed well the previous year, during the first stage of the pandemic, and paid their dividends throughout. With less scope to recover, they underperformed and their value also suffered from an adverse translation effect with the rise of sterling.
Not holding Glencore (a mining company) was the biggest stock detractor, but this was partly offset by our positions elsewhere in the mining sector in Rio Tinto, BHP and Anglo American, which produced share price total returns of 41%, 36% and 59% respectively. The mining companies benefited from strong commodity prices, especially for iron ore, due to demand from China. The iron ore price rose by 112% over the 12 months.
The underweight position in AstraZeneca was the biggest stock contributor, followed by the holdings within the financial sectors of M&G and St James’s Place. Also among the top 10 stock contributors were: La Française des Jeux (French national lottery operator), Halfords (auto parts and bicycle retailer) and IMI (engineer).
A key influence on performance was the relative returns of large, medium-sized and small companies. Medium-sized and small companies, which in general were more exposed to the reopening of the economy, significantly outperformed with respective returns of 33% and 50%. In contrast, large companies, which tend to be more defensive and have greater international exposure, produced a return of 18%. City of London is predominantly invested in large capitalisation equities, where the dividend experience was better than the rest of the market but underperformed in terms of total return.”