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The City of London Investment Trust plc

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The City of London Investment Trust – the cheap route to overseas revenues

With UK equities currently trading at a record discount – nearly a fifth cheaper than other markets – they may present an attractive opportunity for global investors.

Though it may not feel like it, with a cost-of-living crisis and inflation raising prices throughout the economy, investing in the UK is comparatively cheap. This is because UK equities are trading at a wide discount to other markets. According to a report from investment bank Panmure Gordon in December 2023, equities listed in the UK are 19% cheaper than their international peers on a like-for-like basis.

Unfortunately, this reflects investors’ less-than-positive view of the UK. The discount has existed since the shock 2016 Brexit vote, as investors pulled money out of UK equities and have remained wary about further geopolitical uncertainty and the country’s sluggish economic outlook.

Simultaneously, many major equity markets around the world became more attractive. Several major indices – including the S&P 500, Euro Stoxx 50 and Nikkei 225 – are up over the year for various reasons. However, these now higher valuations have made global equities more expensive for new investors. This is forcing many to rethink how they gain exposure to global earnings growth and income.

Going global via Paternoster Square

It is worth remembering that many UK equities are, in fact, not UK-focused in practice and instead draw a high proportion of their revenues from overseas. This is most evident in the FTSE 100. Although it is the index of the largest companies listed on the London Stock Exchange, based at 10 Paternoster Square in the City, most of them are global organisations with revenues coming from many markets around the world. Some 75% of the index’s revenues come from overseas (calculated September 2022).

Therefore, a better way to look at the UK equity market is to realise it provides access to overseas earnings at a discounted rate. This means analysing a UK-listed equity and taking into consideration its operations and where they make their sales, which is an objective approach.

Exploiting the UK’s valuation gap

A disparity between where a company earns its revenues and where it is listed can present an opportunity for investors.

For example, FTSE 100-listed Rio Tinto is one of the world’s largest mining and material companies with a valuation of £46bn and over 52,000 employees across 35 countries. Its listing location in London is a world away from its mines across Australia, North America, Asia and Africa.

Investing in Rio Tinto provides exposure to a company that pays healthy dividends earned through revenue generated in China and around the world. And because it is part of the UK equity market, which has fallen out of favour, this company can be invested in at a discount. Crucially, this is about more than just price and can be an important factor from a risk-management perspective. Companies that generate revenues around the world are necessarily less reliant upon a single market and therefore offer greater diversification benefits than domestically focused peers.

This theme runs throughout the City of London Investment Trust (CTY). In the trust’s most recent annual report, we revealed that 69% of investee company revenues came from overseas, as of 30 September 2023.

Not only is the trust accessing attractive, income-generating companies with worldwide exposure, but doing so in a cost-effective way.

Targeting global companies at a discount through the UK’s valuation gap has presented some great opportunities to the CTY portfolio – with some even appearing in the trust’s top 10 holdings. Two of the most notable examples that highlight this theme are BAE Systems and Unilever.

The former is one of the world’s largest defence contractors, with the US government its biggest customer. An escalation of several conflicts in the last two years is reflective of what many analysts believe to be the end of the post-cold war peace dividend, which freed governments from high levels of defence spending. And Unilever, which owns a vast range of valuable household brands, sold around the world. This includes a strong presence in emerging markets where consumers are increasing their spending every year on premium goods.

There are several good reasons why UK equity market valuations are low, but prices don’t always exactly reflect the underlying fundamentals. With a market as unique as the UK – where so many constituents have global operations – this is worth bearing in mind when assessing valuation opportunities.


Discount – Refers to a situation when a security is trading for lower than its fundamental or intrinsic value. The opposite of trading at a premium.

Diversification – A way of spreading risk by mixing different types of assets/asset classes in a portfolio, on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.

Dividend – A variable discretionary payment made by a company to its shareholders.

Emerging market – The economy of a developing country that is transitioning to become more integrated with the global economy. This can include making progress in areas such as depth and access to bond and equity markets and development of modern financial and regulatory institutions.

Equity – A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bonds. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.

Valuation metrics – Metrics used to gauge a company’s performance, financial health and expectations for future earnings, eg. price to earnings (P/E) ratio and return on equity (ROE).


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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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.
  • Some of the investments in this portfolio are in smaller company 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.
  • 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.