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

In October 2021, the UK equity market produced a total return of 1.8%1, as measured by the FTSE All Share Index. Large companies outperformed, with the FTSE 100 Index of the largest 100 companies producing a total return of 2.2%, compared with 0.5% for the FTSE 250 Index of medium-sized companies.

A key factor behind the strong performance of the FTSE 100 Index was the banks sector, where investors anticipated the benefit from rising interest rates on banking profitability. Contrary to expectations, the Bank of England did not raise the base rate in November, although increases are expected over coming months given the rise in inflation. City of London’s best performing bank holdings in October were HSBC and Lloyds.

Wm Morrison Supermarkets left City of London’s portfolio in October as a result of the agreed takeover by Clayton, Dubilier & Rice, a US private equity firm. It is sad to lose a company of Morrison’s quality, given its high freehold property ownership of its supermarkets and differentiated, vertically integrated food strategy, sourcing and manufacturing a large proportion in the UK. On the other hand, after the bidding war between two private equity firms, shareholders probably received fair value for their shares. City of London retains a large holding in Tesco in the food retailing sector.

Despite some tax rises in the Budget, the overall fiscal position remains expansionary as does monetary policy with record low interest rates continuing in the UK and overseas. Overall, this should be positive for the growth of the economy as well as corporate profits and dividends, although inflationary pressures will be a headwind for some companies. The UK equity market’s dividend yield remains attractive relative to the main alternatives.

Source: Bloomberg, FTSE All Share Index as at 29th October 2021.