Half-Year Update From The City Of London Investment Trust

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Half-Year Update From The City Of London Investment Trust

The popular City of London investment trust (LON: CTY) has just released its interim accounts for the six months to the end of December. These reveal an NAV total return of 6.5% over the period, which was comfortably ahead of the 5.2% achieved by its FTSE All-Share benchmark.

City aims to provide long-term growth in income and capital, mainly by investing in shares listed on the London Stock Exchange, with the Board fully recognising the importance of income to shareholders. It is one of the AIC’s dividend heroes and has successfully increased its distributions every year since 1967.

The trust pays an attractive yield of 5.2% and has significant distributable reserves to support the payments going forwards. With assets of two billion pounds it is the largest fund in its peer group and benefits from low ongoing charges and an experienced manager who adopts a cautious approach.

The Underlying Portfolio

It is quite a diversified portfolio with the ten largest holdings at the end of December including the likes of: Shell, BAE Systems, RELX and HSBC. Although it is a UK equity fund, over two-thirds of revenues earned by the underlying companies come from overseas.

During the reporting period, the biggest sector and stock contributors were the underweight positions in pharmaceuticals and AstraZeneca. This was followed by the overweight in real-estate investment trusts, with Land Securities being a particularly strong performer.

Three new holdings were added in the six months. These were: Burberry, a luxury British fashion company with around half of its stores in the Asia Pacific region; Hilton Foods, which is a packer and distributor of meat products, with operations in the UK, Europe and Australasia; as well as the international oil and gas company ENI.

Earnings, Dividends And Costs

Earnings per share were virtually unchanged from the equivalent period last year at 8.8p. This was because a fall in dividends from mining companies was offset by increases from the banks and oil majors, while special dividends were down significantly.

City has declared two interim dividends of 5.05p each in respect of the current financial year. The amount of the next quarterly payment will be reviewed by the Board before it is declared in April 2024.

Last year the dividend cover was 1x earnings with the shares currently yielding 5.2%. The fund’s diverse portfolio, strong cash flow and revenue reserve give the Board confidence that it will be able to increase the total annual dividend for the 58th consecutive year.

Another attractive feature of the trust is the low management fee, which has just been reduced from 0.325% per annum to 0.3%, possibly as a result of removing its costly secondary listing on the New Zealand Stock Exchange. It has also introduced a second fee tier of 0.275% based on net assets over £3bn.


CTY was one of few equity trusts to issue shares during 2023, however this ground to a halt in the second half of the year with the last ones issued in early August. The shares are currently trading close to NAV.

Manager Job Curtis thinks that the valuation of UK equities looks compelling compared to their equivalents overseas, possibly due to the low allocation from domestic institutional investors. He particularly highlights the dividend yield of the London market, which he says is attractive relative to the main alternatives.

The broker Numis describes City of London as a solid option for investors seeking income from UK equities. They say that Job Curtis has managed the fund since 1991 and his track record over the past 10 years is strong, with NAV total returns of 72% compared to 66% for the FTSE All-Share.

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