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How European smaller company shares have outperformed over time


The City of London Investment Trust plc

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Dividends that keep on growing – whatever the economic weather

The City of London Investment Trust has increased its dividend every year since 1966, delivering secure and rising income to our investors through thick and thin.

Dark clouds

Inflation has passed its peak in the UK and the rate of price increases is now set to decline. Nevertheless, inflation is set to remain well above the low levels experienced for the last decade or more. In times such as these, securing income that beats inflation is harder than ever.

Higher inflation has in turn led to higher interest rates and many savers and investors may have hoped for higher rates from bank savings. But just as many have found those bank savings rates can still be disappointing. Banks have not passed on higher rates in full and achieving a savings account rate much above 4% is difficult, particularly if you are wary of locking away your savings for several years.

The Janus Henderson Investors City of London Investment Trust (CTY), which principally invests in FTSE listed equities, could be the solution.

Beating inflation over the business cycle

Dedicated to delivering secure and stable income and capital appreciation over the long term, we have been able to raise our dividend every year for the last 56 years.

In our last full year, we delivered a dividend growth of 2.6%. That may not have beaten inflation in the last 12 months, but the consistent growth of our dividends over many years means we have trounced inflation over the longer term. Over the last 10 years, dividends from CTY have risen by 41.2%, while the cumulative effect of inflation, as measured by the Consumer Price Index (CPI), has been just 26.5%.

This consistent dividend growth is the key to our success and the long-term inflation-beating value we have delivered for investors.

There are two elements to this success. The first has been our strategy of low risk diversified investment in blue chip companies. Our top five holdings, for example, are Shell, Unilever, HSBC, BAE Systems and British American Tobacco. Our investments are overwhelming UK-based but, as these names illustrate, they are often global businesses, meaning their sales and profits are not linked solely to the UK economy or the value of the pound, and can benefit from growth in other markets as well.

Of course, even the most reliable global businesses face tough times, such as an economic slowdown or an unpredictable crisis such as the Covid-19 pandemic. In such difficult periods, earnings from even blue-chip companies can fall.

This is where the second factor in CTY’s success comes into play – the investment trust structure – which allows us to smooth dividend payments and create consistent income growth for our investors.

Our dividends were even immune to Covid-19

An investment trust can set aside some of its earnings during the good times in a cash reserve. CTY has always built its reserves during good times. Thanks to this disciplined approach, CTY has been able to draw on those reserves to keep increasing our dividend, even when companies are cutting theirs.

CTY Earnings Per Share vs. Dividend Per Share by year

Source: CTY annual reports 2014-2022

Between 2013 and 2019, the investment trust’s earnings per share (dividends from the companies in which we were invested) rose steadily. CTY paid out most of these earnings as dividends to our own shareholders but held back a small proportion to build up reserves. Then in 2020 as the pandemic took its toll on business, its earnings per share fell sharply as companies slashed their dividends. But, thanks to our prudent building up of reserves, we were able to keep on increasing dividends for our own shareholders.
As the economic effects of Covid-19 have faded, earnings from our investments have begun to rise and we have been able to pay back into those reserves, helping to secure future dividends.
Our dedication to secure and stable dividends as well as constant dividend growth has delivered rising income to our investors and allowed them to stay far ahead of inflation over the long term.

Discrete Performance Table

Discrete year performance (%) Share price (total return) NAV (total return)
30/6/2022 to 30/6/2023 4.1 4.5
30/6/2021 to 30/6/2022 7.7 7.5
30/6/2020 to 30/6/2021 21.3 20.0
30/6/2019 to 30/6/2020 -16.2 -14.6
30/6/2018 to 30/6/2019 3.0 2.7

Past performance does not predict future returns.

Consumer price index (CPI) – A measure that examines the price change of a basket of consumer goods and services over time. It is used to estimate ‘inflation’. Headline CPI or inflation is a calculation of total inflation in an economy, and includes items such as food and energy, in which prices tend to be more prone to change (volatile). Core CPI or inflation is a measure of long-run inflation and excludes transitory/volatile items such as food and energy.

Earnings per share (EPS) – The portion of a company’s profit attributable to each share in the company. It is one of the most popular ways for investors to assess a company’s profitability. It is calculated by dividing profits (after tax) by the number of shares.


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.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authori
ty) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 78, Avenue de la Liberté, L-1930 Luxembourg, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

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Important information

Please read the following important information regarding funds related to this article.

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.
    Specific risks
  • 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.
  • Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
  • 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.
  • Using derivatives exposes the Company to risks different from - and potentially greater than - the risks associated with investing directly in securities. It may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • If the Company seeks to minimise risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or negative for performance.