September Commentary: City of London

13/10/2017

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​UK equities produced a negative total return of 0.4% in September as measured by the FTSE All Share Index. With the Bank of England indicating that it is likely to increase interest rates, Sterling rallied against the US Dollar and the Euro. Given the negative effect on overseas profits of Sterling’s rise, the FTSE 100 Index, which is predominantly made up with international companies, produced a negative return of 0.7%, underperforming the more domestically focussed FTSE Mid 250 Index of medium-sized companies, which produced a positive return of 0.6%.

The oil sector was a notable outperformer with the oil price responding positively to demand and supply factors. Additions were made to City of London’s holdings in Royal Dutch Shell and BP where significant cost cutting has made the dividends more secure. General retailers also outperformed with the Trust’s holdings in Next and Marks & Spencer both producing double digit returns. Mining was a notable underperformer, hurt by weaker metal prices. City of London has below average market exposure to mining but holds BHP Billiton, Rio Tinto and Anglo American for their dividend potential.
 
In September, City of London raised £50 million of fixed rate 32 year private placement notes at an annualised coupon of 2.94%. In our opinion, this locks in long-term borrowing at an attractive rate and should enhance long-term performance. In the short term, the dividend yield from UK equities remains attractive relative to the main alternatives.
 
 
Glossary -
Dividend yield: a dividend expressed as a percentage of current share price.
Private placement: a sale of stocks, bonds or securities directly to a private investor, rather than as part of a public offering.

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.


Important information

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

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.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Specific risks

  • 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
  • If a fund is a specialist country-specific or geographic regional fund, the investment carries greater risk than a more internationally diversified portfolio
  • Not all the investments in this portfolio are made in Sterling, so exchange rates could affect the value of and income from your investment

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Fund name changes

Please note that from the 15 December 2017 funds previously named Janus or Henderson have been renamed Janus Henderson. This change aligns our product names with our name, Janus Henderson Investors, following the merger of Janus Capital and Henderson Global Investors in May 2017.

This name change does not impact on the management of the underlying funds and investors and advisers are not required to take any action. This does not affect Janus Henderson’s range of investment trusts.