The City of London Investment Trust Fund Manager Commentary – July 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 July, and outlines recent portfolio activity.
2 minute read
The UK equity market returned 4.4%, helped by favourable corporate results from the first six months of 2022. UK inflation hit a new 40-year high of 9.4% in June, up from 9.1% in May, while the UK economy unexpectedly grew by 0.5% in May, after shrinking 0.2% in April.¹ Within the equity market, the FTSE 250 Index of medium-sized companies outperformed with a total return of 8.3%.²
Trust performance and activity
The Trust produced a total return of 2.9%, underperforming the FTSE All Share Index which returned 4.4%. This underperformance was partly due to the portfolio being predominantly invested in large companies.²
The two biggest stock detractors were the holdings in motor insurers Direct Line and Sabre, where premiums have not kept pace with the rising cost of claims. Notable positive contributors included holdings in Ibstock, the brick maker, and IG Group, the online trading company, which both reported better-than-expected results.³ In terms of activity, we bought a new holding in NatWest, which has been benefiting from rising interest rates and bond yields, and also announced a special dividend.
City of London has a diversified portfolio with positions in sectors that we think are well positioned to cope with current inflationary pressure, such as consumer staples and oil. In addition, it has significant holdings in financial sectors, where rising interest rates and bond yields are typically a helpful tailwind. In general, satisfactory profits and dividends were announced in the recent corporate reporting season while the yields found on UK equities remains attractive relative to the main alternatives.
Please read the following important information regarding funds related to this article.
- If a trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
- Where the trust invests in assets which are denominated in currencies other than the base currency then currency exchange rate movements may cause the value of investments to fall as well as rise.
- This trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this trust.
- Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
- The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
- 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 trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
- The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.
- All or part of the trust'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.