October Commentary - City of London

13/11/2017

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​UK equities produced a total return of 1.9% in October, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies produced a total return of 1.8%, slightly behind the FTSE Mid 250 Index of more domestically focussed medium-sized companies, which produced a total return of 2.0%.

Reflecting global economic growth, commodity prices were strong with oil up 7.2% and copper up 6.0%. Discipline in allocating capital expenditure from oil and mining companies has led to a reduction in new supply coming onto the market. An addition was made to the Trust’s large holding in Royal Dutch Shell where confidence has grown in the sustainability of its dividend with the higher oil price and after it has significantly cut costs. The Trust’s holding in BHP Billiton was also added to because it appears significantly undervalued at the current level of commodity prices and offers an attractive dividend yield.
 
Defensive sectors, including utilities, pharmaceuticals and telecoms, underperformed. The imminence of a rise in UK interest rates had a negative effect on some of these sectors which are considered “bond proxies.” A reduction was made in the Trust’s holding in United Utilities given indications that the next water sector regulatory review will be tough.
 
The housebuilding sector had another strong month. Some profits were taken in Berkeley Group which is focussed on the London residential market where house prices have been falling.
The growth being experienced from the main economies of the world, including the UK, is positive for corporate profits. The dividend yield from UK equities remains attractive relative to the main alternatives.
 
Glossary-
Bond proxy: An equity perceived to pay safe and predictable income with low volatility – characteristics that are more commonly associated with bonds. They are typically drawn from the utility, consumer staple and pharmaceutical sectors. They might be added to a portfolio to imitate bonds, hence their name.

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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