The City of London Investment Trust – an unrivalled record for reliable income
Everyone has a different vision of their retirement. It may be a chance to travel, to indulge a hobby or help the family, or maybe it’s just to sit back with a cool drink and smell the roses. But whatever your vision, the key ingredient is a reliable income and never more so than in today’s uncertain economic climate.
5 minute read
For those approaching or already enjoying their retirement, the current state of the economy can be a worry. Higher inflation, jittery financial markets and a mixed outlook for the economy make securing a reliable income more important and more challenging than ever.
Smart investment decisions can make all the difference and when it comes to consistent income and security, investments do not come much more reliable than The City of London Investment Trust (CTY).
CTY is dedicated to delivering consistent returns and regular dividends and has proved itself reliable for decades, having increased its dividend every year since 1966. This 56-year record is unmatched by any other trust and therefore the Trust sits at the top of the Association of Investment Companies Dividend Heroes list.
A £1,000 investment in CTY in 1966 would have yielded a gross income of £46,500 over 56 years. Over the same period, a typical savings account paying the Bank of England’s base rate would have paid out just £3,700. If that investor in 1966 had reinvested their dividends back into the trust, they would be sitting on an investment worth £780,000.1
Source: The City of London Investment Trust, Annual Report 2022
CTY’s performance stems from its strategy of low-risk, diversified investment in blue chip companies. The focus is on large, high-quality British companies, often with international operations. This approach brings the benefits of diversification, which has allowed the trust to sustain its dividends to investors through thick and thin.
The diversity of investments covers a wide range of both industry sectors and income streams. The companies in which the trust invests are predominantly UK-based, but often with a global footprint means income derives from a wide range of markets and a wide selection of currencies – 67% of revenues come from abroad. This diversity of income sources reduces the trust’s exposure to volatility in the UK economy, helping sustain dividends through domestic ups and downs.
The quality of its investments and their international standing can be seen in the trust’s top holdings, which include the energy groups Shell and BP, defense and aerospace giant BAE Systems, global banking group HSBC and the international consumer companies Diageo and British American Tobacco.
The consistency of returns is also helped by low management fees and the stability of its management team. Fund manager Job Curtis has been overseeing the trust’s extraordinarily successful investment strategy for more than 30 years and has worked with his deputy, David Smith over 10 years as part of the wider Janus Henderson Global Equity Income team.
The investment trust structure itself is also central to City of London’s consistency and reliability of income. It allows CTY to save up to 15% of income in good years for dividends, into a reserve, which can be used to increase the Trust’s dividend in periods of dividend cuts, such as in the pandemic. In addition, as an investment trust, it is a closed-end company. This means investors can buy in or cash out without requiring the trust to liquidate assets – in other words, the strategy can be followed rigorously and without distraction.
The structure and the strategy of The City of London Investment Trust can help deliver the key to a relaxed retirement – income that is smooth, consistent, and reliable – leaving you to get on with… well, whatever you want.
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.
Not for onward distribution. 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. 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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.
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1 Source: The City of London Investment Trust, Annual Report 2022
Diversification – A way of spreading risk by mixing different types of assets/asset classes in a portfolio. It is based on the assumption that the prices of the different assets will behave differently in a given scenario. Assets with low correlation should provide the most diversification.
Volatility – The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. Higher volatility means the higher the risk of the investment.
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. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
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.
Please read the following important information regarding funds related to this article.
- 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.
- The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
- 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.
- All or part of the Company's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.