The City of London Investment Trust Fund Manager Commentary – August 2022
Job Curtis, Portfolio Manager of The City of London Investment Trust, provides an update on the Trust, highlighting factors currently affecting the UK market, the key drivers of performance in August, and outlines recent portfolio activity.
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Macro backdrop
The FTSE All-Share Index produced a negative total return of 1.7% as high inflation stoked fears of a recession. July's Consumer Price Index (CPI) rose to 10% for the first time in over 40 years. In response, the Bank of England (BoE) hiked interest rates to 1.75% -the highest level since 2008. Concerns over UK economic growth, combined with a hawkish update from the US Federal Reserve (Fed), caused sterling to fall over 4.5% compared with the US dollar during the month.¹
Trust performance and activity
The Trust's net asset value fell 1.7% in August, while the FTSE All-Share Index also fell 1.7%.¹
Persimmon, the house building company, was a notable detractor over the month as its share price reacted adversely to higher interest rates. The position has been maintained given Persimmon's large land bank which is available for the construction of family homes around the UK. The defensive attributes of tobacco companies, where profits have tended to be resilient in recessions, found favour during the month as Imperial Brands and British American Tobacco were among the best contributors. Conversely, banks have been benefiting from the positive effect of rising interest rates on their net interest margins and so the fund's underweight position in HSBC was a detractor.
In terms of activity, we added to the Trust’s position in NatWest. We also added to the position in Rathbones, the private client wealth manager, as a replacement for Brewin Dolphin, which is in the process of being taken over by Royal Bank of Canada.
Outlook/strategy
The macroeconomic outlook is difficult with central banks needing to raise interest rates in the UK and overseas to counter inflation. In addition, the effect of inflation on consumer spending and on cost pressures for companies adds to the uncertainty. Markets will probably need some visibility that inflation and interest rates are peaking before a sustained rally can be achieved. Our portfolio is diversified with some two-thirds of investee company sales coming from overseas, while the dividend yield from UK equities remains attractive relative to the main alternatives.
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.
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Important information
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Specific risks
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