The Association of Investment Companies’ website recorded the most searches for City of London Investment Trust last year.
The FTSE 250 firm with a market capitalization of £2 billion took the top spot in the rankings for the second consecutive year. Investors seeking a reliable income during these inflationary times have been attracted to its 57-year track record of increasing dividends each year.
City of London has become a rare example of a company that trades at a premium over net assets. As appetite for UK-related investments and active equity investing has declined, most investment trusts are trading at steep discounts. Finsbury Growth & Income, Edinburgh Investment Trust and other once highly respected rivals are now trading at steep discounts of 7% and 9% respectively.
The City of London philosophy is based on investing primarily in London-listed businesses to achieve long-term income and capital growth. The trust has a lot of UK blue-chips, but also a “yield bias”, which is a preference towards higher-yielding companies and stocks. There are many oil companies, tobacco, insurance and banks.
He believes that the British stock exchange’s pariah reputation among investors is not necessarily a bad thing. It has allowed Job Curtis, a manager, to buy stocks at a 20 percent lower price than on other popular exchanges.
The last year was disappointing. The company’s performance was below its benchmark, FTSE All Share by 3.4 percent, and it lagged behind its peers by 4%. Curtis suffered from heavy holdings in underperforming companies such as Direct Line or Persimmon.
The record gets better over longer periods. City of London’s total share price returns have beaten the UK equity sector average for both five and ten year periods.
Curtis is a value investor, but isn’t afraid to run his winners even when the public perception changes and they become tech-savvy worldbeaters. Relx is his third largest holding. He has recently taken a position in a stock that is not typically associated with value investing: Burberry.
He can also allocate up to 20% of his portfolio to foreign companies. This allows him to select non-UK companies in a particular sector if he believes their prospects are more promising. He has a low exposure to AstraZeneca, GSK and prefers Merck and Johnson & Johnson from the US.
The trust recently bought into Vesuvius Advanced Materials, Morgan Advanced Materials, and DS Smith, which are unloved industrials.
The trust has a low-interest rate borrowing contract for the next few decades, as it borrowed at a time when rates were very low. It pays just 2,94% on a £50,000,000 note that matures in 2049. On another £30,000,000 note, it is only 2.67%. This is a low-risk method of increasing returns.
The relatively low charge of 0.325% of assets managed gives investors an advantage.
There are risks. Although value investing has made a slight comeback, the focus is still on growth. This can be seen in the impressive rise of US tech giants over the last 12 months. City of London often backs companies that are out of style.
If it is forced to rely on high-yielding shares, its commitment to dividend growth may become a double-edged blade. It had to dip into its reserves in order to maintain the track record during the pandemic.
Another uncertainty is that of the manager. Curtis is now 62 years old and has been managing the company for 33 years. His departure may not be well-received, even though his company Janus Henderson can rely on others to continue the well-respected income stocks team. He has said he does not plan to retire.
Rowan Gormley’s relationship with Naked Wines is complex
In 2015, after founding the online wine retailer back in 2008, he decided to convert it into Majestic Wine – a bricks and mortar retailer. Four years later, he sold the Majestic company and renamed the listed company Naked Wines. When asked why, he replied: “We have two wonderful companies, Naked, and Majestic.” The two companies have great potential for growth, but we only have enough resources to focus on one.
Naked, like many other online businesses, prospered when the pandemic hit. But as supermarket competition returned, it began to suffer and was given a series warnings about its profits. Gormley was the man to turn things around. It was the founder of Naked who, last year, returned to his role as executive chairman.
Even though he insisted that the situation was “fixable”, it proved to be far from easy, especially with the sharp decline in new and repeat clients and rising inflation. Fairly, he did admit that the fall in sales was part of his “pivot towards profitability” strategy. The result was an “well-executed Christmas and New Year trading period.”
He said that the reduction of investment in recruitment and the 6% reduction in workforce would lead to a drop in sales. “We must recognise that our company is smaller post-Covid, and we have to adjust our cost base to reflect this.” Gormley added.
The South African born entrepreneur loves the fast pace of the wine industry, but he wants to retire as soon as possible. The UK managing director Rodrigo Maza has been promoted to the position of group chief executive. Maza is a young man who has been working for the company since September last year. Gormley said his experience was “a compelling combination of entrepreneurial startups and best practices from large companies”.