For financial professionals in the UK

The City of London Investment Trust – Q3 Commentary 2022

Job Curtis, Portfolio Manager of The City of London Investment Trust, delivers an update on the Company, highlighting factors currently impacting the UK market, the key drivers of performance, and recent portfolio activity.

Job Curtis | Janus Henderson Investors
Job Curtis, ASIP

Job Curtis, ASIP

Portfolio Manager

25 Oct 2022
2 minute read

Investment Environment

The UK equity market, as measured by the FTSE All Share Index, produced a negative total return of 5.9% as concerns about a cooling economy and government plans for unfunded tax cuts unnerved investors. The “mini budget” led to a sharp rise in gilt yields. Sterling fell by 4% against the US dollar to end the month at an exchange rate of 1.12. The more domestically biased FTSE 250 Index of medium-sized companies underperformed with a fall of 9.7%, compared with a fall of 5.2% for the FTSE 100 Index of the largest companies.¹

Portfolio Review

The Company’s net asset value fell 5.9% while the FTSE All Share Index fell 5.9%.¹

The pharmaceutical sector, where a large proportion of sales are made in the US, was a notable contributor with strong performance from our holdings in Merck and Johnson & Johnson. BAE Systems, the UK’s leading defence contractor which also has significant operations in the US also contributed positively. The rise in its share price reflected the outlook for spending on defence equipment. Against a backdrop of turmoil in the bond market, financial group M&G and life assurer Phoenix were notable detractors, despite their attractive dividend yields. Tesco also underperformed, although it reported satisfactory half-year results in October.

During the month, we made additions to employment agency Hays, which is well diversified geographically, with sales split between the UK, Germany, and Australia. We sold the final part of our holding in Brewin Dolphin, the private client wealth manager, ahead of the completion of the takeover, and reinvested the proceeds in Rathbones (in the same sector).

Manager Outlook

The determination of central banks to tame inflation through interest rate increases and quantitative tightening is a headwind for markets. In the UK, the rise in mortgage rates on top of the energy price increases could lead to a squeeze on consumer spending. However, on the positive side, the fall in sterling has a positive effect on the translation of profits for the many UK-listed companies with overseas operations. The dividend yield of UK equities also appears to look attractive compared with the global equity average.



¹Source: Bloomberg as at 30 September 2022


Defensive stocks – A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle.

Inflation – The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.

Gilt yield – Gilt yields express the return on a gilt (government bond) as an annual percentage. There are two ways to do this. The income yield just looks at the annual coupon as a percentage of the price. So if the annual coupon is, say, £5 and the price is £90, the income yield is (5/90) x 100%, or 5.5%. This is useful to investors only interested in the income return.

Net asset value – Net Asset Value is the net value of an investment fund’s assets less its liabilities, divided by the number of shares outstanding.

Quantitative tightening – Quantitative tightening (QT) refers to monetary policies that contract, or reduce, the Federal Reserve System (Fed) balance sheet. This process is also known as balance sheet normalization. In other words, the Fed (or any central bank)shrinks its monetary reserves by either selling Treasury’s (government bonds) or letting them mature and removing them from its cash balances. This removes liquidity, or money, from financial markets.


These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


Marketing Communication.






Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
  • Where the Company invests in assets that are denominated in currencies other than the base currency, the currency exchange rate movements may cause the value of investments to fall as well as rise.
  • This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
  • The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
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  • The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
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