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.

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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

  • 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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