October Commentary: City of London



​For the ninth month running, UK equities delivered a positive return, of 0.6% as measured by the FTSE All Share Index. The FTSE 100 Index of large companies returned 1.0% outperforming the more domestically focussed FTSE Mid 250 Index which produced a negative return of 1.7%. Sterling fell by 6.0% against the US dollar and 3.6% against the Euro with the Prime Minister’s speech at the Conservative Party Conference making a “hard Brexit” more likely.

Long-dated gilts fell and produced a negative return of 6.5%. This was helpful to the banks sector which was a notable outperformer. Although City of London is under represented compared with the market average in banks, HSBC was its third largest holding (at 31/10/16) and there were also positions in Lloyds and Barclays. A notable underperformer was the pharmaceutical sector partly on nervousness ahead of the US election and partly due to increased pressure on prices for medicines in some areas. City of London has below average exposure to this sector with its largest position being GlaxoSmithKline (11th  largest holding at 31/10/16.)
During the month, some profits were taken in British American Tobacco, the Trust’s largest holding, which has performed well, with the proceeds reinvested in other opportunities. A new holding was bought in Innogy, which is a German listed utility with regulated and non-regulated operations. It offers a dependable dividend yield backed by high quality assets.
The result of the US presidential election is another surprise in a year of political surprises. Our interpretation is that the new President will be keen to boost growth to fulfil the hopes of his supporters. He will be aided by both houses of Congress being in Republican hands. To the extent that growth is better than previously expected, it should be positive for equities notwithstanding the many uncertainties. In the meantime, 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 is not a guide to future performance. 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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The City of London Investment Trust plc

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.

Past performance is not a guide to future performance. 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.

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Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • 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.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.

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