Good afternoon everyone, and a warm welcome to today’s City of London full-year results webinar. I’m Janina Sibelius, senior manager for investment communications here at the Janus Henderson Investment Trust team, and I’ll be moderating today’s session. Thank you for joining us as we look back on the trust’s performance over the past year and hear directly from the team. For today’s Q&A session, you can submit questions via the speech bubble icon called Q&A at the bottom of your screen. I will now hand over to the fund manager, Job Curtis, who will shed more light on the past year’s performance.

Thank you very much, Janina, and welcome to everybody who’s listening. So I’m gonna talk about the 12-month period that we review to the end of June and also talk about how the trust is positioned for the current market conditions. So to start off, just with some background, on the trust is, that picture you’re seeing is actually the brewery. Which the trust originally was a brewery company, and in the 1930s, the brewery, which was in the City of London on the banks of the Thames there, closed down and they turned into investment trusts. But for many years, of course, our objective has been long-term growth in income and capital. And we’re also very proud of our dividend record. We have an independent board of directors, which is a great advantage for an investment trust, and our chairman is Laurie Magnus. He’s been chairman since October 2020, and he had a long career in corporate finance, which is advising companies. I just want to draw your attention to parts of his Chairman’s Statement, which was issued on 17th September on two topical issues. The first one is that we made clear that we’ll continue with our policy of issuing shares and buying back in a quite a narrow range within a—really exceeded 3% over the last 15 years. And this means that our investors have less volatility in terms of the relationship between our share price and asset value than the majority of investor trusts don’t have such a policy. And secondly, we made very clear that we will continue to pay our dividends out of income. And wouldn’t contemplate paying out of capital unless in very exceptional circumstances. Because there’s quite a fashion at the moment for investment trusts that pay dividends out of capital profits, and we think, whilst that, you know, can work in a rising market, and people don’t really notice, we think in a falling market, which you do get from time to time, people will be quite upset to have their dividends paid out of declining capital.

So, turning to the next slide, I’ve been manager now for 34 years, it’s been a huge privilege to have done this for my career, really. I work closely with David Smith. We’ve worked together for over 10 years, and he was appointed deputy fund manager just over 4 years ago. Our investment management fee is very competitive, one of the lowest in the industry at 0.3%, and our ongoing charge, which is all the other charges added, is the lowest in our sector at 0.36% and was actually down from 0.37% the previous year. During the period of ultra-low interest rates, we secured some very cheap long-term debt, as you can see, so this is going out for 25 years, to tranche the debt with an average coupon of about 2.8%, which is way lower than the government can now borrow at. David and I work in the Janus Henderson Global Equity Income team. We’ve got 414 of us and, you know, different perspectives, different levels of experience, and we work well together and a fair amount of, you know, obviously challenge within our team and debate as well. We all worked for Janus Henderson; this was formed as a merger between Henderson’s, which was UK-based, and Janus, which is US-based, and it’s worked very well, and certainly Janus has brought us that knowledge of the US market, and it’s really helpful in terms of understanding how our large companies compete globally, and also, you know, we’ve got an exceptionally strong team of analysts. We’ve got about 36 sector analysts, and they are very well known within industries, among the best. So in terms of the City’s investment philosophy, it’s valuation driven, and I take a lot of care and attention to stock valuations, very much reflecting future prospects. So in terms of City’s investment philosophy, it’s valuation driven. I take great care and attention to the stock valuations, very much reflecting future prospects. I start with dividend yields, but we have to be in companies that are growing their profits, because they can grow their dividends and invest enough for the future. So dividend yield alone is not, not enough by any means. And we look at a whole range of valuation measures. The other aspect is it’s a very conservative approach. Both David Smith and I are conservative characters, and we like companies that have good cash generation; they’re best able to support dividends and capital expenditure, and we like strong balance sheets, especially for these companies. We don’t like a mixture of what we call operational and financial gearing. This chart at the bottom just shows you, looks back at the UK market over the last 25 years and shows you where the best returns have been, and they’ve actually been in the kind of middle of the dividend yield, in the 2 to 4% and 4 to 6% range, and that’s really where the majority of our portfolio lies. We’ve got some lower yielders in for the growth and some higher yielders in primarily for their dividend, but that sort of sweet spot is the middle area of the market. So let’s look at the performance. The chart shows you the performance since I became manager, and you can see we’re well ahead of the main UK index, the FTSE All-Share. We’re also ahead, I’m pleased to say, over one year we returned 16.8%, so we’re well ahead of the FTSE All-Share, which was 11.2%, and both from our equivalent investment trust and OIKs sectors. And we’re also ahead over 3, 5, and 10 years, I’m pleased to say.

So how has that performance been achieved? Before I do that, just a slide, which is we need to show you just the performance for each kind of 12-month period over the last 5 years. So looking at where the performance has actually been achieved, the best sector—this is just looking at the sectors—the best sector was what’s called investment banking brokerage services, which is a technical name for what should really be financial services. This sector includes M&G, which is a mixture of life assurer and fund manager, which performed particularly strongly for us. It had a very high dividend. But it also re-rated as people appreciated the dividend and, in addition, it’s very strong in the private sector. Credit side of fund management is going strongly, and a big Japanese life company is going to take a stake in it, which has helped support the share price. Tobacco, which is obviously not an easy sector, but the shares are very lowly rated, and our two tobacco shares did perform very well over the year. They are very cash generative and very good dividend payers. And then life assurance companies, quite similar to M&G but pure life insurance—in particular, Phoenix Legal in general also contributed. In terms of pharmaceuticals, we were underweight, we had less than the index, and that helped relative performance, as did being underweight in the mining stocks. The biggest rising sector was aerospace and defence, where although we hold BAE, we don’t hold Rolls-Royce, which hasn’t really paid a dividend, but it has performed very well. It’s just started paying a small dividend. We also suffered in electronic electrical equipment, food producers, travel and leisure, and real estate investment trusts.

So, turning to the biggest single stock contributors: AstraZeneca, though we hold it, we are underweight relative to the index, and so it didn’t have a great year, so we benefited from that in a relative sense. Within the bank sector—I’ll talk a bit more about banks in a minute—but NatWest performed extremely well over the year, both in terms of share price performance and dividends, and that’s the second biggest contributor. Imperial Brands is a tobacco stock. BAE Systems is our main defence contractor, by far the biggest in the UK, but also the fifth biggest defence contractor in the US, and also with growing interest across Europe—very big in Europe and in Asia Pacific countries like Japan and Australia. They have important sales too. And then I’ve already mentioned M&G and I’ve already mentioned Rolls-Royce as our biggest detractor. Merck is a US pharmaceutical stock we hold, which has done well longer term, but detracted over the 12-month period.
And then within the UK banking sector we don’t hold an unchartered, and although we hold HSBC, we’re underweight, so they detract from performance. And then the oils—our French oil stock, which has again done well long term—are detractors over the 12 months, at TotalEnergies. In terms of portfolio activity, I’ll sort of summarise this. We had three takeovers in the year, which is another illustration of the cheapness of the UK market: Direct Line, the insurer; DS Smith, a packaging company; and Britvic, which is a soft drinks Pepsi Cola bottler—all got taken over. For Direct Line, we switched into Admiral, which is another motor insurer with probably a better track record. We also bought some TP ICAP, which is an intermediary in financial markets. And in the oil sector, we bought a new holding in Harbour Energy and sold out of ENI, which is an Italian-based international oil company. Two small positions which we didn’t do very well in: DFS Furniture and Burberry, where they both stopped paying dividends and we sold them. And we also sold Pennon, the South West Water utility, but we do hold positions in Severn Trent and United Utilities in the water sector. Looking at the revenue picture, we’re incredibly proud of our dividend record; that’s 59 consecutive annual increases, the longest of any investment trust. We put the dividend up by 3.4%, marginally ahead of our earnings per share, which are up by 3.3%, and our revenue reserves per share increased by 5.3%, which we dip into during difficult years. I mean, you can see from the table. The year five years ago to the end of June 2021, we had to use reserves; it was kind of in the aftermath of the COVID pandemic when our companies were still cutting dividends and not rebasing them, not bringing them back quickly. But the next four years, including last year, we’ve covered our dividends. So last year we paid out 21.3p, we earned 21.57p, so it was a payout ratio of 98.7%, with the rest put back into reserves. So this chart shows you the dividend record going back 59 years, and I think the key is a core of consistent companies within the portfolio that can grow their dividends through the cycles. Having said that, I think it is a diversified approach, it’s very important. You don’t want to have all your eggs in one basket, and the chart on the right just shows you the different spread of sectors, so we’re not overly exposed to any one particular sector, although we have got quite a strong weighting in the financial group. If you added banks, financial services and insurance together, it’d come to about 33%. So that’s an important part of our sectors.

But the next biggest area being consumer staples, which are kind of everyday products that companies sell, which tend to be more stable. So I’ll talk a bit about the market, how we’re seeing it at this moment and how the portfolio’s positioned. And obviously this year’s brought tariffs from the US, which you haven’t seen since the 1930s; these are much higher tariffs. There’s been quite a lot of volatility surrounding them. The equity markets have recovered very strongly from the initial tariff announcements in April, as you’re probably aware, and obviously the US has reached agreements with various countries including the UK, but the tariffs are much higher than they were previously, before the Trump administration. And in my opinion, it’s probably a bit early to really know the full impact of tariffs. I mean, obviously it doesn’t affect services, which are a large part of the UK economy, and we have a relatively small manufacturing traded goods sector, so in some respects we’re relatively less affected, but it is, you know, we are a bit in the unknown with these policy changes. UK interest rates have been on a downward path. They’ve come from a 5.25% base rate down to 4%. I think there’s a halt at the moment with inflation back at 3.8%, it’s probably going to get to about 4% before it starts to go down again. And obviously wage growth has been quite sticky. So I think the Bank of England is treading cautiously, but I would expect interest rates to go down again, you know, on a 6 to 9 month view. We think the valuation of the UK remains very attractive. The dividend yield is 3.6%, but in addition, there’s a large amount of companies taking advantage of the cheap valuations to buy back their own shares. And if you add up all these buybacks, they’re worth about 2% of the market cap of the whole of the UK market. So you’re getting a total distribution yield, which is the dividend yield plus the share buyback yield, of over 5.5%, approaching 6%, which is a pretty attractive starting point. The two charts show you the price earnings ratio, which is relating share prices to profits per share or earnings per share, and that’s in line with the long-term average. I mean, the bottom chart shows you the dividend yield compared with fixed interest, where a base rate, 10 or 30-year gilts, and the dividend yields are below fixed interest—unlike during a period of ultra-low interest rates prevailing from 2015 to about 2022. But this is a more natural relationship in my opinion, and most of my career, equities yielded less for the very good reason that you get dividend growth from equities, whilst by definition, fixed interest you get is fixed. In terms of the structure of the portfolio, we have about 79 holdings. We’re predominantly in the large cap end of the market—81% in the FTSE 100 and 11% in the rest of the UK market. We’ve reduced our overseas listed shares. Back in 2022, we had about 17% overseas listed. We’re now down to about 8% because of the better value we see in the UK market, and our gearing at the moment is about 5.3%, making use of those very cheap loans which I talked about earlier.

In terms of sectors, our biggest single sector is banks, and we moved overweight 18 months ago against the index for the first time since before the financial crisis. In particular, banks are benefiting from a big tailwind of the hedges they take out, which are typically on a 5 to 7-year basis. As they roll over from the very low interest rates, they can reset them on the much better interest rates that are prevailing today. So we think the banks have got enough capital now, and we’ve seen some very pleasing share price and dividend performance. Financial services are the second biggest sector. I talked about M&G earlier. We’ve also got companies like IG Group, St. James’s Place, and Rathbones in this part of our portfolio. And then personal care, drug and rice stores—this is one of the leading consumer staple sector categories. Unilever is our biggest holding in the global consumer products group, and we also have a big holding in Tesco in this part of the portfolio, and Reckitt. Oil was slightly underweight, but we have 7.6% of the portfolio in oil, with our biggest holding being Shell. Then tobacco, which has been performing very well—we’ve got BAT as our biggest holder and we also hold Imperial Brands. This chart here is very important—the one on the left is the pie chart—because what we can do is look at the underlying sales or revenues of the companies that we invest in. And actually, if you drill down, 60% comes from overseas. So actually, you are getting a lot of exposure to global growth through the UK stock market and through our portfolio, and 40% is accounted for by UK sales. And as you can see globally, it’s a pretty good spread with plenty in North America, plenty in Europe (excluding the UK), Asia Pacific, and emerging markets. The next chart on the right just shows you where our big weights are. Our biggest overweight is financials. It’s also the biggest part of our portfolio—around 33%—some 5 percentage points overweight, followed by consumer staples, which is again the second biggest part of our portfolio at 18%. Our biggest underweight is consumer discretionary. These are companies that are sensitive to consumer spending, where we have retailers or travel and leisure. We’ve got a fairly low weighting here, only about 2 percentage points of the portfolio—slightly over 2% in consumer discretionary. We are 5 percentage points underweight against the index.

Healthcare is our second biggest underweight. We’ve got some decent positions, but we struggle a bit with some of the valuations. So we’re 4 percentage points underweight in healthcare. Looking at the top 10 holdings, you can see 3 banks in the top 10: HSBC, NatWest, and Lloyds. Then 4 consumer staple stocks: BAT, Unilever, Imperial Brands, and Tesco. We’ve got 2 stocks I call real growth stocks, which are lower yielding: BAE Systems, seeing a terrific growth in demand for defence and related, and RELX, which is the business information provider for businesses and professionals, providing analytics and information, and has an exceptionally good track record. Looking at the next 10 down, you’ve got M&G in financial services. You’ve also got, in the life insurance sector, Aviva, Phoenix, and Legal & General. Our biggest pharmaceutical stock is AstraZeneca. Another bank, Barclays. Our biggest utility is National Grid. Our biggest REIT (Real Estate Investment Trust) is Land Securities, and Rio Tinto is our biggest miner. BP is our second biggest oil stock, with Shell—which was in the top 10, as you might have seen—as our biggest oil stock. So to finish off before I hand over to Janina for questions that might have come through: it’s 59 years of annual dividend increases, the longest record of any investment trust. We’re immensely proud of it. It’s been achieved through having a core of consistent companies in the portfolio, but also in difficult years for dividends, making use of the investment trust structure and paying out of our revenue reserve. We have very competitive charges. We’ve got the lowest charge in our sector at 0.36%, actually down on the previous year when it was 0.37%. And we’ve achieved long-term outperformance of the UK market. The FTSE All-Share index being our benchmark, through a conservative investment style. So thank you very much for listening and I’ll pass back to Janina.
Thank you, Job, for the presentation.

So we’ll move on now to the Q&A portion of the webinar, and again, if you haven’t already, you can submit questions through the Q&A chat, which is the icon at the bottom of your screen. I think I’m going to start off with a little bit more of a wider question on the economy itself. So, you touched on the tariffs in your presentation, Job, and, as you said, we don’t yet know the full impact of the tariffs, but how have you adjusted your investment strategy to mitigate any potential risks and capitalise on the opportunities? Well, I think, as I said, it sort of affects more manufacturers of goods rather than services companies. A large part of our portfolio is in services-type companies, and when it comes to manufacturing, most of our companies do manufacturing locally. For example, BAE Systems, the big defence contractor, has major factories in the US. So overall, we’re not particularly affected, but it’s something we’re watching very closely. It hasn’t had a meaningful impact on us. There is a small impact on some companies, but it’s not been a massive impact on the portfolio.

OK. And going to themes and sectors, what were the themes and sectors that stood out as contributors to performance over the past year? Oh well, I think obviously the financials are something to mention. I think the banks have performed very well. It was initially the banks that performed well, followed by financial services generally like life assurance and the financial services stocks I talked about. I think the higher interest rate environment is very helpful for financials. I talked about this effect on the banks, and it’s also quite helpful for insurers and life insurers in a different way. I think after the financial crisis, banks had to increase their capital for many years to get back to proper levels of capital adequacy. For quite a few years, they weren’t even paying dividends. In addition, regulators—having not regulated them tightly enough ahead of the financial crisis—really tightened regulation up. But now I think the pendulum has switched a bit. Politicians, both in the UK and elsewhere, are worried about economic growth. There isn’t enough; we need more growth. We can’t afford for things to stagnate without more growth, and I think they’re beginning to realise that banks are part of the solution. You don’t get growth in the economy without bank lending. So I think some of the regulatory constraints are being relaxed a bit for the banks, which is helpful for growth—for both the banks and the economy generally—and for their profitability. I think it’s a better environment for the banking sector, and that’s quite an important theme. It’s our biggest sector in the portfolio, and that’s certainly been an important theme over the last year.

And speaking of themes, with the ongoing global shift towards artificial intelligence and data centres, are you considering increasing the trust’s exposure to these sectors? Well, it is a massive thing going on, and there’s obviously a huge amount of capital expenditure going into artificial intelligence from the leading US technology companies. I do slightly worry about where the returns will come from. The amount of capital going in is absolutely staggering—it really is huge. There’s a vision of what it can do, but it’s quite hard at the moment to see where the returns will come from. If you’re in the food chain of this capital expenditure, obviously it is very beneficial for some companies. You’ve seen some huge moves, mainly in large American companies, and you’ve seen some huge moves on the American stock market. I certainly remember back in 1998, people saw the potential of the internet, but there was a huge bubble in share prices then. It took quite a few years for the actual benefits of the internet to come through. Everyone could see what would eventually happen, but the real winners and losers took a while to emerge. So I do worry that some of the speculation could be a bit premature. But within our portfolio, I’d highlight one particular stock—RELX—which is in our top five holdings. As I mentioned earlier, it provides business information and analytics, and they are already using artificial intelligence to give their customers a better service than they previously had. For example, they’re the second biggest firm providing legal information globally, including in the United States, and they’re really seeing real applications to help lawyers. But it has to be done with real accuracy—you can’t provide it at just 95% accuracy. And I think that’s why a company like RELX, which has a huge database and information going back decades, is very well placed. It spends a lot of money on technology to provide AI with the level of accuracy that professionals like lawyers require. So, I personally see it not just as a strong long-term performer, but also as a clear beneficiary of the AI trend within our portfolio. People debate how much it will benefit, given the uncertainty, but I would certainly see RELX as a clear beneficiary.

OK. Let’s talk a little bit about the UK market. How do you see the UK market evolving in the current economic climate, and what could help turn sentiment more positive? Well, I think the companies are… I mean, the thing about the UK stock market is that UK institutions like insurance companies and pension funds, for many years, have favoured fixed interest because they’re looking to cover their liabilities. They were previously big owners of the equity market, but they’ve moved very much into what’s considered less risky assets—that can be debated. And I think a lot of investors in the UK have also gone very global. People just buy global funds. There used to be something called “home bias,” where people favoured their home markets. At the moment, I think UK investors probably have more invested in Nvidia than in the whole of the UK stock market. Nvidia and Microsoft each have market caps worth more than the entire FTSE 100. So I think the UK market is quite unloved in terms of domestic bias. As a result, companies themselves have become the marginal buyers of their own stock, realising how cheap it is. You’re seeing huge share buybacks, which I talked about earlier, and that’s very beneficial for those of us who remain as investors. It’s very enhancing, especially as it’s done at a cheap level. We’ve seen this work very well in companies like Shell and Imperial Brands, which are among our top 10 positions. Some 60% of FTSE 100 companies have bought back their own shares. So I think this is a very helpful underpinning for the UK market. Obviously, economic growth remains quite sluggish, and there’s a lot of uncertainty ahead of the budget. But hopefully, once the budget’s out of the way, people will at least stop talking about it and we can move on. As I said, while the UK market is very global in terms of the underlying revenues of the companies, for the more domestic end of the market, I would expect inflation to peak around 4% and then start to come down into the middle of 2026. That will allow the Bank of England to cut interest rates, which I think would be helpful for the domestic end of the UK market. I think the valuation—well, we had three takeovers last year from companies in our portfolio, and foreign companies and private equity firms are continuing to make takeover bids. That’s another factor supporting the market. So the UK market this year, since the beginning of January, has actually outperformed the US market considerably, particularly if you take the weakness of the dollar into account, and that’s really quite encouraging.

Thank you. I think we’re running out of time, but any questions that remain unanswered, we’ll see if we can get back to you via email. As a reminder, the AGM is being held at 1pm on Thursday, 30th October, here at Janus Henderson Investors’ London offices at 201 Bishopsgate. There will also be a Zoom connection for anyone who can’t travel. More details on this, and how to vote your shares and attend, can be found on the company’s website. A big thank you to Job for walking us through the results today and giving his thoughts on the outlook, and of course to all of you for joining us today. We will now end this session. Thank you.